How to Choose Between Commercial and Residential Properties

Real estate investment is a lucrative source of income. Once you’ve decided that you’re going to get into real estate, the most important thing to do is narrow your options. At first glance, it might seem like investing in residential and commercial property is more or less the same. But the truth is, the two types of properties vary on many levels, and the one-size-fits-all approach won’t work here. Read the following steps to learn how to choose between commercial and residential properties.


  1. 1
    Analyze the demands of the market.
    • Commercial real estate is the more sensitive of the two options because it’s affected by both local and global economy.
    • Commercial buildings have a chance of staying untenanted for a long period of time.
    • People might not always want to invest in commercial spaces if the market seems shaky.
    • Residential real estate is much more stable since people will always need housing.
    • You are responsible for maintaining residential houses and they have low rental returns when compared to commercial buildings.
    • Location should be the prime highlight when buying residential or commercial buildings.
    • Commercial buildings may lose its appeal if its surrounding area doesn’t follow real estate trends.
  2. 2
    Find out how your investment is going to perform.
    • If you don’t account for capital appreciation and only compare the rental yield, commercial real estate performs better.
    • Residential properties, on the other hand, have a lower rental yield when compared to commercial properties.
    • The catch is that it’s harder to assess performance of commercial real estate because you can’t really compare it with other properties.
    • Residential properties have a higher rate of capital appreciation, which compensates for and supplements the rental yield. Although, you’ll have to sell the property to see this income.
    • It’s also much easier to assess performance of residential real estate by comparing it with similar properties. This gives you greater predictive power as to the performance of your investment.
  3. 3
    Consider the initial investment.
    • Commercial real estate takes a bigger capital investment initially, which may exceed the budget of aspiring investors.
    • Residential real estate requires lesser capital investment initially, and it’s more likely you’ll be able to get into this solo.
  4. 4
    Calculate the turnover time.
    • Commercial properties generally have a longer lease period than residential properties, but it might be slightly harder to find tenants. Once you do find tenants, you won’t have to worry much about paying for property repairs, as this is usually covered by them.
    • It’s easier to find tenants for residential properties, but the lease periods are shorter. There is a good chance that the lease will be renewed, if you manage to find tenants who will stay. The catch is that any repairs to the property will have to come out of your pocket.


  • The most important factor for either type of investment is your knowledge on what you’re doing.
  • Do extensive research and hire corporate lawyers if needed to get to the best investment option.

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Categories: Real Estate