Do you want to invest in property? If so, there are several things that a first-time investor should know, although the first thing you should decide is the type of property you want to invest in. Residential and commercial are the two types of property you can choose to invest in, and to help you decide on the right investment for you, read this guide outlining the advantages and disadvantages of both property types. This will ensure that you make the right decision and will offer you lucrative returns for years to come.
Residential
Residential properties have one purpose, and that is to provide living space to the general public. Choosing to invest in this type of property can offer you both positives and negatives for whatever type of home you invest in – whether you decide to purchase a detached home in the countryside, or a city-centre apartment.
Pros
There are numerous benefits to investing in residential property, the first being rental demand. This is the level of tenant interest in a specific area, and if it is high you can actually up the rent, resulting in a substantial return on your investment. With rental properties becoming more popular than ever, you are guaranteed to reap the benefits of a buy-to-let investment. To help you find the right property location, you should seek advice from property professionals like RW Invest, who have several properties available in north-west cities like Liverpool and Manchester, where rental demand and yields are at an all-time high.
Another advantage of investing in residential property is that they are much more manageable than commercial properties, so you will spend less time and money on maintenance and upkeep. If you only own one or a handful of properties, then you can handle things like collecting rent, performing finance and background checks, and if you have the skill you could even perform any repairs. By doing it all yourself, you can reduce your outgoings, which will allow you to maximise your investment profits.
Cons
The drawbacks of investing in residential property include the element of risk, which of course is a consequence you face when making any sort of investment. This risk can be heightened if you only have one tenant, as this may not offer you the funds you need to pay any outgoings, including your mortgage repayments. To resolve this, you should consider investing in multiple properties in an apartment block, which will be easy to manage and will also offer you the capital you need to create positive cash flow.
Commercial
This type of property is used for business purposes, so there are a variety of buildings you could invest in, such as retail stores, medical centres, hotels, warehouses and more. By providing space to businesses, you can gain massive profits, but there are also some downsides to this type of property.
Pros
One of the main advantages of investing in commercial property is that business tenants tend to stay in properties much longer, as moving around could hinder their business. This will allow you to benefit from long-term income in the form of capital gains and rental payments. You can also charge higher rates to tenants depending on the size of the property and its location. If you own commercial property in the city centre, you can also charge your tenants more for rent, as central locations are a prime spot for businesses.
Cons
Investing in commercial property can result in liquidity issues, which has caused some commercial investors in the past to face loss due to open-ended property funds. These funds prevented investors from withdrawing their capital due to blocks put in place after the EU referendum. As of now, property funds still hold high amounts of cash, which means returns would suffer, and cash would be slowly distributed – leaving you with long-term loss.
When dealing with business tenants, you would need to consider bringing in outside help, as in comparison to residential property, looking after business tenants is much more demanding. For example, in an office building, you may have to deal with multiple companies that require all different services from you, therefore you would need to hire a property manager or an expert company. This can be costly and will result in you losing out on your expected returns.