What’s better? Rental income from residential or commercial property?

Many people find investment in property lucrative. Not just the value of the property increases with time but there are possibilities of earning rental income as well, if the owner wishes to rent out his property. However, many find it difficult to understand the kind of property to invest in, whether it should be commercial property or residential?

Both kinds of investment have their own pros and cons. It depends on the preferences of the person investing whether he would like to go with the ups and downs of the economy and buy the commercial property or would like to be safe from any kind of external factors affecting his rental income and buy residential property.

Yes, the most important point that you need to consider while buying commercial property is that dealing with commercial properties is bit complicated as it is directly related with the ups and downs of the market.

Let us delve in some more details about what kind of property investment will suit you.

Commercial property v/s residential property

Commercial property is comparatively expensive than the residential property. This is because the property is located in a market area and it will be used for the commercial purpose. Residential property on the other hand, is not as costly as commercial property. The buyer is able to get more number of square feet as compared to that of commercial property.

As mentioned above, commercial property is linked with market dynamics. The investor is able to earn high rental income if there is demand of commercial property and demand is especially considerable in the area where his property is located. However, at the same time, the vacancy risk always prevails unless there is an agreement in place. On the other hand, residential property is not linked with market ups and downs. Moreover, the basic purpose of the residential property is to provide temporary living space to tenants. So the owner does not face any kind of risk, however he needs to be active enough that his property is rented out on the continuity basis.

If we look at the rental income, there is no doubt that the commercial property will fetch more rent. This is because the tenant is willing to take the property on rent for commercial purpose I.e. to earn profits. Residential property, on the other side, will fetch returns but that will be comparatively lesser than that of the commercial.

In case of the repairs and maintenance of the commercial property, the responsibility lies on the tenant. Whereas in case of the residential property, it is the responsibility of the landlord to pay for the repairs and maintenance of the property.

Rental income from the commercial property, in any case, is better than that of the residential property. However, the investor has to bear the cost in terms of higher investment amount and the vacancy risk. If the investor is ready to bear the risk, he may have commercial property. If not, it is better to have residential property.