If you are planning to invest in rental properties, you will have to choose between residential and commercial properties (or mixed use developments). Let us look at what you will need to consider before deciding between the two.
If you are looking at the amount of rent generated, you will see that commercial properties have the upper hand, as generally commercial properties command higher rents than residential properties. Another difference lies in vacancy rates. Since commercial properties are more ‘exclusive’ than residential properties, finding tenants can be quite difficult. Therefore, you can expect long vacancy periods as the owner of a commercial property.
In comparison, it is easier to get tenants and ‘fill up’ residential properties. Another factor is that of the tenants’ financial stability. Tenants of commercial properties tend to be quite financially stable – you shouldn’t have too much trouble collecting the rent at the end of the month without having to hear excuses like ‘my pay-check hasn’t arrived’. After all, the occupants of commercial properties are not just individuals but businesses – hence, paying the rent should not be too difficult for them. In comparison, you can expect late-paying (or non-paying) tenants in residential properties due to less financial stability. Since tenants in residential properties are individuals and not businesses, you can expect delayed rental payments due to unemployment, debt, etc.
Now let us compare the duration of the lease. In residential properties, the rental agreement is typically for a year, and the tenant just needs to notify you a month or so in advance if they wish to leave. However, in commercial properties, leases can run for far longer – 5 to10 years. In commercial properties, businesses will generally invest a large amount of money towards setting up the place – therefore, they are definitely not going to leave ‘on a whim’ as they stand to incur large losses if they leave too soon. However, tenants of residential properties have only expenses like moving costs to consider if they wish to move out. Therefore, with tenants of commercial properties, you can breathe easy for some time as you know that they are not going to leave anytime soon. Also, tenants of commercial properties tend to take better care of the property, as an office/store in bad condition can leave a bad impression on customers. Tenants of residential properties, however, face no such motivation to keep the property in good condition.
Whether you choose to invest in residential or commercial properties, you will need to prioritise the reputation of the property developer. Reputed property developers build only high-quality projects like Bahria Town, DHA and many more. Properties like DHA or Bahria Town are truly assets because you will never have to worry about frequent repairs or issues related to structural problems which would otherwise eat away at your rental income reducing the returns from your rental property. A rental property is a valuable asset that will help you earn passive income – however, make sure that you only invest in only high-quality rental properties and after considering all factors