10 Ways Owning Commercial Property Beats Residential Property

Investors know that real estate is a great investment vehicle. It’s tangible, it’s limited, and it’s necessary for the health and strength of communities. When you’re looking to buy real estate, the first question you need to answer is this: commercial or residential?

That’s the question we’re going to explore today, and we think you’ll find that commercial wins hands-down. Let’s take a look at 10 ways owning commercial property beats residential property.

Commercial vs. Residential Property

1. More Access to More Capital

Many real estate investors find that it’s easier to raise capital for commercial deals than it is to raise capital for residential deals. In commercial real estate, it’s much more common for investors to pool their resources and syndicate deals than it is in residential real estate. Other commercial real estate finance options include joint venture projects, equity firms, private REITs, and hedge funds.

2. Responsible Tenants

Every person needs a place to live, so residential tenants run the gamut from very responsible people to those who just can’t seem to get it together. On the other hand, people who are seeking commercial space to rent have already proven that they can run successful businesses. They’re much more likely to pay on time and follow your policies than your average residential tenant.

3. Less Competition

Getting into residential real estate is easier than getting into commercial real estate. It takes less money to enter the market, and most people are familiar with home maintenance and what it takes to buy a house. For these reasons, there’s simply less competition in the commercial real estate market, and for commercial investors, this is a very good thing.

4. “Forced Appreciation”

The value of residential real estate largely depends on sales of other comparable properties. This limits the value of your holdings. For commercial real estate, however, the value is based on the revenue generated by the property. If you can figure out how to increase the revenue (by adding services, innovating property usage, etc.) you can “force” the appreciation. You have more control over its value.

5. Longer Leases

Residential renters are usually temporary tenants. They may rent for a few years while they save enough to buy their own homes, or they may be testing out a neighborhood before they decide to commit. Commercial tenants, however, tend to stay in one place for many years. Moving a business is not only difficult; it can have serious negative consequences when it loses local clientele or store-front recognition. Longer leases mean less turnover, which means less work and instability for investors.

6. Income Potential

Commercial properties often earn annual returns off the purchase price between 6% and 12%. On the other hand, single family home properties usually earn just 1% to 4%. If long-term cash flow is a priority for you, commercial property is probably the way to go.

7. Professional Relationships

Unfortunately, many residential landlord/tenant relationships end up feeling a little like parent/child relationships. This can be a mental and emotional drain on investors. With commercial real estate, however, the owners and tenants develop business-to-business customer relationships. These relationships are usually professional and courteous, and they can even increase your working network in the Sydney area.

8. Common Goals

Retail and office building tenants have a vested interest in keeping their storefronts maintained and clean. If they don’t, they’ll lose customers. Therefore, commercial property owners and their tenants have a shared goal of maintaining and even improving the property. Ultimately, this increases the value of the commercial property investment.

9. Limited Hours of Operation

Residential tenants live in their homes around the clock. Sometimes things go wrong in the middle of the night, and the property owners have to take emergency calls to retrieve lost keys or unplug clogged drains. For commercial properties, it’s much less likely that you’ll have to be on call around the clock.

10. More Flexibility in Lease Terms

Commercial real estate investors have fewer consumer protection laws to work with than residential real estate investors. This gives you more flexibility with lease terms, renovations, innovations, and marketing strategies.

Commercial Property in Sydney

To learn more about investing in commercial property in Sydney, or to learn about how Nutshell can assist you with properties you already own, give us a call.

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