Property investment can be a great way to build wealth, but it’s also a significant financial decision that requires careful consideration. One question that may come up during this is whether a residential investment or commercial property investment is better for you.
Both options have their advantages and disadvantages, so the choice will ultimately depend on your financial goals, risk tolerance, and personal situation.
In this blog, we’ll explore the differences between residential investment and commercial property investment to help you make an informed choice.
Residential investment
Investing in residential properties offers a sense of familiarity and stability, so many Australian investors prefer to buy houses and apartments.
The entry costs for residential properties are generally lower when compared to commercial properties, making it easier to enter the market. Also, getting a residential loan is usually more straightforward and accessible, with numerous lenders offering a wide range of options.
People always need a place to live, so a residential investment will generally have a broader appeal than commercial property, particularly if you buy in a desirable location with good amenities and access to schools, transport, and other essential services.
On the downside, residential tenants typically sign shorter lease agreements than commercial tenants. What’s more, as a residential landlord, you are usually responsible for paying council rates, land tax, body corporate fees.
Commercial property investment
Commercial property investment offers a different set of opportunities and challenges.
On the plus side, commercial properties typically offer higher rental yields than residential. Commercial leases tend to have longer terms with tenancies lasting anywhere between three and 10 years, providing more stable and predictable income streams for landlords.
Furthermore, tenants generally pay for rates and other outgoings.
But while leases are longer, it can be harder to find a tenant. You will need to cover all the costs during any vacant periods The market can be more volatile, as the demand for commercial spaces can fluctuate depending on economic conditions.
Many lenders view commercial property investment as riskier, so commercial loans tend to have stricter lending criteria and higher interest rates when compared to residential loans.
You’ll also need a bigger deposit as loan-to-value ratios on commercial mortgages are a lot lower than standard residential loans.
Commercial property loan interest rates and terms vary widely depending on the lender and the strength of the application.
An expert commercial loan broker in Sydney, such as Loan Station, can help you navigate these intricacies as they can use their knowledge and network to find you a loan that matches your unique needs. They can then structure the deal to increase your chances of approval and help you secure favorable terms.
