Property is divide into two categories, residential and commercial properties. Residential properties consist of land primarily use for residence; buildings, houses, and condos all fall into residential properties. At the same time, commercial properties refer to land use for income-generating activities and not residence. Factories, warehouses, malls, and shops are all examples of commercial properties. Many investors get confuse between the two types of real estate properties and cannot determine which one would be the better investment. Here are some disadvantages of residential and commercial properties that will hopefully help you decide which type of property would make the better investment.
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You will need more capital.
Commercial properties, in general, are more expensive than residential properties; hence, if you decide to wear shops, offices, and factories, they will cost you a hefty amount. Moreover, unlike residential properties, commercial investments require a higher amount as a down payment Moreover, along with the down payment, commercial investments also give rise to several other expenses that you will have to pay for, such as plumbing or electrical issues. However, commercial properties also have a higher return on investment than residential properties.
More affect by the economic conditions.
The prices of commercial properties are more unstable than those of residential properties. The value of commercial properties is very sensitive to the economic conditions of the state and even the world to a certain extent. The cost of the property is directly dependent on the economy’s performance. If the economy is growing, the prices will rise; however, the prices will plummet if the economy goes into recession. During a recession, the demand for commercial properties falls dramatically; however, the demand for residential properties only drops by a small amount as the people still need a place to live. Invest in Lahore Smart City.
A lower return on investment
While commercial properties have high prices, residential properties are not that cheap either. However, most modern houses in good neighborhoods cost a fortune and require the investment to pay a high down payment amount. However, unlike commercial properties, the rate of return earn on residential properties is extremely low compare to that earn by investing in commercial properties. Therefore while residential properties have a high price, their rate of return is not remarkable and is a very risky investment. Reselling a residential property is also harder than selling commercial properties as only people interest in residing in the house will purchase the house. Moreover, the gain on the investment is very low when it comes to residential properties. Residential properties have very stable prices that majorly remain un affect by the economic or political climate of the state; hence the prices very rarely rise.
Problems with tenants
Suppose you invest in real estate properties, then you will most likely give it for rent. While giving the property for rent allows you to earn a stable monthly income, it doesn’t come without its own set of problems. Tenants can cause several problems, often turning into a nuisance. Tenants can cause problems when it comes to the payment of rent as they can either delay the payment or not pay at all. In the case of non-payment, you can file a case against the tenants; however, the case is likely to be drag and will cost you a lot.
Furthermore, if you choose irresponsible tenants, they can cause considerable damage to your property which you will have to pay for later on. Tenants are the people who will occupy your property and will be responsible for taking care of it daily. However, if something goes wrong, you will be require to pay for the repairs.
Both residential and commercial properties come with their disadvantages; hence as an investor, you need to study both the property and your financial position to determine which property is best for you. Invest in Nova City.