Are you eager to explore the residential and commercial property markets for an investment?
While COVID-19 has been cruel to the economy, the South Africa property market is growing once again, and Seeff has witnessed first-hand the booming demand for residential property.
Now could be your time.
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Read on for Seeff’s analysis of residential property vs commercial property and what factors investors should consider before making a decision.
The purpose of a commercial building is to generate profit. Examples of commercial property are retail stores, malls, office blocks, and warehouses.
However, it’s worth consulting a property investment expert for guidance. They’ll understand the market; and explain everything from interest rates to evaluating the property itself, so you receive the best value.
The purpose of residential property is to accommodate people. Interestingly, a property must be less than four units to be classified as residential. A “mixed-use building” is a property that’s used for residential and commercial purposes.
Zoning laws cover what you can and cannot do in a particular area. To protect yourself from liability, you need to ensure you aren’t infringing on any laws.
The consequences of breaking a rental agreement could include financial penalties and even a lawsuit.
Each property type has its pros and cons, but Seeff unpacks three differences between residential and commercial below:
1. Lease agreements:
These are usually shorter with residential tenants, but residential tenants are also easier to come by than commercial tenants because of the consistent demand for houses.
So even if tenants vacate, it’s unlikely you’ll have to wait a long time to get in new ones. Whereas for commercial property, it’s harder to find new tenants, and the building could be empty and not bring in cash for long periods of time.
2. Additional costs:
Commercial buildings incur higher tax and maintenance costs. It’s easy to see why: the premises are generally more extensive, with more physical areas to upkeep.
On the other hand, a residential property might suffer more wear and tear from everyday use - while a commercial building is likely only used during business hours. Ultimately, you need to decide if the money you’re putting into the property outweighs the money you’re earning out of it.
3. Cost of entry:
This initial cost is more manageable and affordable on residential property. But again, consider the future: while you might pay more upfront to purchase a commercial building, you’ll earn more from your tenants than you would in a residential home. Is it worth it? Do cost forecasting to help you make a decision.
When it comes to residential vs commercial property and real estate investing, there’s no easy answer. You have to weigh up the advantages and disadvantages of your situation, so it’s essential to consult a property professional.