If you have decided to invest in real estate as part of your portfolio, the next big question is whether you should go for commercial or residential properties. This is a personal choice. It will depend a lot on the following:
- Your investment strategy,
- The risks you are willing to take, and
- What the market has to offer.
Here are some insights to help you decide what is right for you.
Commercial Property Investment – Higher Risks, Higher Rewards (H2)
Often, commercial properties are more rewarding as an investment than residential ones because they have a higher earning potential. Many investors also prefer commercial properties for the following reasons:
- Professional Rather Than Personal Relationships
You are dealing with a business rather than a person or family, so it is usually a more professional and business-like relationship between tenant and landlord.
- Greater Alignment Of Interests
Businesses know the value of maintaining their storefront and property for the benefit of their clients. So, they are actively invested in keeping the property looking great and operating well.
- Limited Hours Of Operation
Businesses have set hours of operation. Therefore, landlords can expect communication, requests, etc. to be limited to these hours.
- Longer Leases
Moving premises is a big commitment for a business, and many prefer to have much longer leases than the standard year-lease you find with homeowners. You can often expect leases of between 3 and 10 years.
- Greater Variety Of Investment Options
Commercial investment properties have a huge range of scope and include retail and office buildings of all sizes, warehouses, industrial buildings and mixed-use buildings.
However, this is not an investment that comes without risk. When the economy is under stress, commercial buildings may take much longer to find tenants. In addition, tenants may go bankrupt or downsize more frequently. The costs of commercial buildings are often higher than residential homes, and there are also different insurance implications because of the location and use of the building.
Residential Property Investment – Lower Risks, More Stable Rewards (H2)
With the right research and approach to residential property investment, you can build a lower-risk portfolio that offers stable investment income and growth. Homes are often in demand and, with the economy in a difficult position; more people are looking for rental properties than ever before. This means that there are good opportunities for bargains out there with stable income potential and growth potential.
As you can see, the type of property you choose to invest in comes down to what offers the best risk-return balance for your portfolio. Finding the right commercial or residential property means researching what investment offers you the best returns, looking at different options with an open mind, and deciding what level of personal commitment and risk you are prepared to take to build your portfolio.
Jason Scholtz is the CEO at Envision Investments and a leader in the property and strategic investments industry in South Africa. For more investor tips and an insider’s look into the South African market, be sure to get in touch, keep an eye on this blog or visit http://www.envisioninvestments.co.za/