Commercial Vs Residential Property Investment


It would be logical to assume that a property that people live in would be considered residential real estate, whereby property that is used to conduct commerce or business would be considered commercial real estate. Most part of that is true. The exception we suppose would be multifamily properties and apartment complexes that contain several units. These types of properties are also considered commercial properties along with office buildings, warehouses, retail strip malls and the like.

Residential real estate consists mainly of single family homes and duplexes. But most times there is a mixture of residential and commercial use of same property. Our focus here however is the purpose for which a particular property has been let out or sold.

State of the market

There are several reasons why owning commercial property is better than owning residential property. There are also several reasons on the reverse side. We will consider these facts side by side.

Considering the Commercial school, commercial real estate has a higher rate of return than residential properties. Commercial property is space for businesses to sell their products and services. Their businesses depend on the number of visitors they receive each day in their store.

The monthly rent on a commercial property is based on a certain percentage of the profit the company makes each month. As the businesses your rent to, make more money so do you. When a business comes and want to rent from you they do so because they know you have a good location.

These businesses know the value of being centrally located and they are willing to pay to be in the right place. Location is less important for residential properties and it takes time to fill up your real estate.

Another school of thought will also argue that location is a vital factor generally in real estate, irrespective of whether residential or commercial is in issue. Where it not so, then residential property developers will find it easier to remain in business as sites for development will continuously be in great supply.

Thus residential property investors will always find available market for their properties irrespective of the locations of such properties.

Furthermore, the commercial school of thought pretends that most commercial tenants will fix problems and minor repairs on their own without calling the landlord. This is because they realize that problems interfere with their business and need to be taken care of immediately. Unlike residential renters who need the help of a landlord to take care of repairs. The updates done on commercial property can be fairly substantial and stay with the space when the business moves on.

Companies usually need to put in networking and cable wires, sound systems, and electrical outlets. All of which increase the market value and marketability of your commercial space. If you are interested in buying and renting property do not over look the benefits of buying commercial property.

As much as the above may be true, the residential school will quickly remind us that such expenses is recoverable from the landlord on a letter date. As well, our laws also provides for compensation for improvement on lands/properties by tenants.

It is far more passive that residential real estate appreciates in value much quicker. Also being a commercial landlord is far easier and you have the ability to network with people and businesses which you may work with in the future.

While the above is a truism, it is trite that in real estate investment the cardinal issue is location. Irrespective of whether a property is residential or commercial, if location is bad, then nothing flies. Thus a better located residential property will always be a better investment than a badly located commercial property.

The Real Facts

The basic difference between commercial and residential real estate is that most homes are occupied by their owners while all commercial properties are potentially income producing. Although many people purchase homes and rent them out, this of course is real estate investment, but not exactly commercial real estate. Commercial real estate can be leasing office space, owning an apartment complex, selling real property along with or as part of the sale of a business, or even industrial or agricultural property.

There can be huge differences between a commercial real estate deal and a residential real estate deal (buying a home). Commercial real estate transactions can be much more diverse and wide-ranging than selling a home. Generally, the risk and potential liability exposure you face on a commercial real estate deal can be much greater than buying a home. Commercial real estate buyers must also consider hazardous materials and management of traders, as well as whether the location is suitable for business.

Commercial real estate property is also not given the same consumer protections as a residential real estate tenancy. The mandatory notices and disclosures required in residential real estate deals may or may not be strictly required in a commercial landlord and tenant relationship, depending on the area. Also, there are greater protections in place for residential tenants than for commercial tenants. By obtaining the services of an experienced real estate expert, you will take the first step toward ensuring you have all the facts when you go to close the deal.

Further Facts to Consider

The fundamental difference between commercial and residential real estate is the fact that all commercial properties are potentially income producing while most homes are occupied by their owners. While you can obviously purchase a home and rent it out, it is not considered commercial real estate. Consider areas like office complex, industrial, warehouse, event center, etc. There are other commercial property types such as hotel/motel. These are areas individual investor might consider investing in.

Office, industrial and retail properties typically require a greater amount of initial investment because it is more difficult to find smaller properties to purchase. These types of properties also require, in most cases, some form of professional management. This is because negotiating commercial leases with businesses is much more complicated and difficult than negotiating leases with individuals in rental property. This element can also be a benefit as it allows the investor to simply purchase and monitor their property without having to deal with the day-to-day hassles of management. These types of investments can be very attractive when there is a solid long-term tenant in place or where there is no potential to substantially increase rents on the property.

Each product type has its pluses and minuses depending on a variety of factors including, but not limited to the management of the property, the size of the investment and amount of inventory available. Naturally the value of any particular property is also subject to typical market conditions such as location, physical attributes and current demand for that type of product.


So, Is Commercial or Residential Real Estate Investment Right For You? Ultimately, that’s up to you. Our guide has revealed all relevant facts regarding investment in both areas rich enough for you to make an informed decision.

We must however advise here that the wisest form of investment is diversification. You will be doing it right if you spread your real estate investment across the borders of residential and commercial properties. We will always be here for you as you mediate on a solid real estate investment without boundaries.

Contact Palydom now or email us at, for a FREE, No Obligation consultation regarding any of your property related issues or requirements.

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