When investing in real estate, it is crucial to understand the dynamics better and know which investment parameter is going to benefit you more, either it is the commercial plots or it is residential plots. There are quite many buyers who are aware that which plot is better to invest or what merit or demerit each scheme holds, but not all the buyers are aware of it. Genuine buyers look for better investment module and those that apparently are more valuable than any other.
Let us dig in the vital difference between the both i.e. commercial and residential plots and then discuss which one is a better option in investment point of view. But before that, it is worth mentioning that there are a number of factors that determine the basic difference between these two real estate properties, which are:
- Finding Tenants
- Rentals
- Cash Flow
- Documentation and Leasing
- Value of the Property
- Knowledge of the Investor
- Financing
Residential Real Estate Investment
One of the prime merits of investing in residential real estate is the availability of tenants. Regardless of the economic conditions, it is easier and quicker to find tenants for residential plots. The basic reason is that people prefer to live in those areas that are either close to their jobs, educational institutions, friends, families, etc. Meanwhile, with investment in residential also guarantees cash flow, that means even your current tenant is leaving, there is always a brighter chance to get a new one quickly.
The demand for residential ones is always higher as compared to commercial plots. In residential plots, the tenants are supposed to pay the rent weekly or monthly depending upon the country or the agreement signed.
Valuing the property in residential is calculated with the market rates of the area the plot is available, which means that if the value of the area is higher than the rate of the plot will also be higher. When talking about the residential, it is easy to purchase it. With a small down payment, the property can be easily yours and mortgages, bank loans and financing are also easily accessible. The lease in this is easy to comprehend, short to read and while reading the documents there are no communication concerns with the landlords and tenants.
The biggest demerit of residential plots is that the tenants sometimes makes it too difficult in paying off their rent. Eviction process of tenants is another problem as many tenants don’t leave the house no matter what. The other concern is the rent, they don’t agree to increase the rent every year or monthly, as per the agreement.
Commercial Real Estate Investment
One of the biggest advantages of commercial plots is that they tend to be more lucrative as compared to residential investments as they offer steady returns and of course high cash flow. When it comes to commercial real estate investment, the merit is that the tenants usually pay the extra expenses like maintenance and the repairs, as they cannot afford any loss for their business.
Commercial plots have a longer lease period, therefore there is a guarantee of a longer cash flow period. The documents of the lease are too crucial in commercial plots as they determine the value, price and the agreed rent in an appropriate manner in the presence of a lawyer. The agreed rent plays a vital role in commercial plots, as when it comes to unpaid rents, the landlord reserves the right to penalize the tenant resulting in immediate eviction, agreed over the lease document.
Since commercial plots have higher risks with greater returns, the investor needs to have better cash flows and proper knowledge about the investment with a better experience. There are a lot different financing options in this too, where the banks are ready to help in financial assessment and infrastructure development.
One of the demerit for a buyer can be that the lease documentation is too long with many clauses in it. Without the help of a competent lawyer, understanding such documents cannot be possible. Another problem is that in commercial real estate, the property is actually used for business purpose, any drop in the economy can affect the business, resulting in utter loss of the income of the tenant. Due to this, the tenants are likely to leave the plot and the landlord has to find new tenants. Finding new ones aren’t too easy in the commercial sector, hence till then, every expense has to be tolerated by the landlord himself.
The Better Option?
In a nutshell, both the real estate investment options i.e. commercial properties as well as residential properties have their own merits and demerits. But what is most emphasized is that in the real estate world there is need of experience, therefore many investors prefer to start with residential investment plans before leaping into the commercial arena.
Both the structures are too different with unique challenges and diverse cash flows and returns. Concluding one is better and other is not can never be justified, as both serve quite different purposes to dissimilar audiences.
However, in the end, it is entirely up to the investors to decide themselves the most suitable investment module for them as per their financial standing and personal goals. At ilaan.com we are always ready to assist you and guide you with better opportunities and investment options. Simply leave a message to our online chat support system or contact us directly. Don’t forget to download our mobile application for more assistance and ease in finding your new investment ventures.
