When you dive into the world of real estate investing, you are faced with countless questions and confusions. Which location of the city to invest in? Which real estate builder to buy from? Whether to invest into a residential property or into a commercial property? Which will perform better in the long run or even short run? How easy will it be to liquidate the property?
by The Team
Countless questions and countless opinions.
But first, let’s get to the basics and understand both.
Any property that is typically rented and not occupied by its owner. Another way to see residential property is; any property that is created for the sole purpose of living.
Any property that is created for the purpose of business operations can be called a commercial property. It can be for a retail store, office or industrial usage. This can include buildings, movie theatres, day care centres, warehouses, retail shops etc.
There is not a definite answer to this but it can differ from investor to investor. But the basic rule that applies to all investors is: hold it for a long period of time.
To get a clear understanding, let’s take a look at the major points of difference between commercial real estate and residential real estate property investments.
- A residential property requires a lot of work compared to a commercial property in terms of maintenance and the time you will have to spend in communication with tenants etc.
- A commercial property can be given on lease for a longer period compared to a residential property in which tenants might not stay for longer periods of time. Commercial property generally provides stable and long-term rental income. Commercial properties, on the other hand, are leased for longer periods of time than residential homes.
- Commercial and residential properties that are rented out are subject to income tax. A home loaned property, on the other hand, qualifies for tax advantages under Sections 24 and 80C of the Income Tax Act.
- When it comes to giving a commercial property on lease, the gross rental yields usually range from 6 to 10% per annum of the fair market value of that property.
- Annual increases in property rental rates range from 3 to 5% every year.
- Net yields typically vary in the range of 5% to 8% per annum after insurance, property tax, and maintenance.
- The overall return estimation over a span of 10 years is around 13 to 15% per annum.
- When it comes to giving a residential property on rent, the gross rental yields usually range from 3 to 5% per annum of the fair market value of that property.
-Annual increases in property rental rates range from 5 to 7%.
-Net yields can come down to typically 2 to 3% percent per annum after insurance, property taxes, and maintenance.
-The overall return estimation over a span of 10 years is around 8 to 9% per annum.
| Advantage | Disadvantage |
|---|---|
| Low-cost admission | Rental yields / revenues are low. |
| There is no minimum or minimum size limit | Investment of the interiors, etc., to make it more rentable |
| Loan arrangements are readily available | Rental agreements are normally limited to 36 months |
| The leasing procedure is usually simpler. | In comparison to commercial property, the holding period for returns is shorter |
| Advantage | Disadvantage |
|---|---|
| Rental yields and returns are higher | Commercial property capital values tend to be constant for extended periods of time |
| Longer lease terms are conceivable, up to nine years | To be commercially successful, the property may need to be a certain size |
| Leasing options can be in bare shell or warm shell | Offloading is difficult |
Under Construction Real Estate Opportunities:
Malabar County 3 (Residential Apartments Near Nirma University): https://ganeshhousing.com/malabar_county_3
Malabar Exotica (Residential Apartments Near Nirma University): https://ganeshhousing.com/malabar_exotica
Maple Trade Centre (Commercial Property At Surdhara Circle): https://ganeshhousing.com/maple_trade_centre
These are the properties that can be really good fits for real estate investors.