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Property has long been a popular choice of investment. If you have decided that you would like to diversify or begin your investment portfolio by purchasing a property, there are a lot of decisions that need to be made. One of the key decisions is whether to invest in commercial or residential property. It can be a challenge to figure out which one is going to be right for you.
It is important to be aware of the key differences between investing in residential and commercial property. Of course, you will already be aware that the former means that your tenants are going to be living in the property you have purchased, while the latter is an investment in business premises. Read on to discover more about the key differences between both options in further detail.
Investing in residential property
With residential properties, you can expect a more stable investment. This is because residential tenants are going to be available irrespective of the economic climate. If the economy was to take a downturn, the same may not be said for business tenants. A lot of people also find residential leases much easier to understand. The process is a lot more straightforward, which is ideal for those looking to make their first property investment.
Commercial property investment
While commercial property investment can be lucrative, it comes with more risks. Not only do you have to consider the impact of the economy, but also you probably won’t get as much financial assistance in terms of bank loans. Most banks are willing to lend around 75% or more for the housing market, yet 60% or less for the commercial market. Plus, there are many clauses with regards to the contract, so you will need a good lawyer on your side to help you navigate your way through this. If you do decide to go down this route, you need to have enough cash reserves to handle the higher risks, as well as greater experience and knowledge.
In terms of tenants, it is fair to say that both commercial and residential properties can be exposed to bad tenants. While luck has a lot to do with it, there are now stringent procedures in place for screening tenants to make sure you do not fall foul of a bad lodger.
Hopefully, you are now aware of the key differences between commercial and residential property investment. No matter what route you go down, it is so important to make sure that you seek the right legal advice and that you also update your will as well. This is imperative otherwise probate disputes can easily arise between your family members.
So there you have it: an insight into the differences between investing in residential properties and commercial property investment. Both can be great opportunities to make more money, and so it is all about figuring out what is going to be right for you and your current financial situation.
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