As always, real estate is a booming market, and with the current market conditions, it is one of the most reliable and safest forms of investment. If we talk about the divisions of the real estate sector, then this sector is majorly divided into two categories, namely Residential and Commercial real estate.
Investing in both these categories is way different hence you must know everything about these categories in detail so that you can make the right decision. But remember, deciding between Residential and Commercial real estate is not something that can be done overnight. You need to understand every aspect related to each one of them. So, here we have included everything about Residential and Commercial properties along with the differences between them.
Let's begin with some information about Residential property first, and later, we will move on to Commercial Property and the difference between the two!
What is Residential Property?
As the name suggests, Residential property is a place where houses are entirely built for the sole purpose of residing or staying in. Such houses are completely free for self-use by the residents and can never be used for commercial or industrial purposes.
Residential properties are apartments or homes that might involve single-family houses, studios, townhouses, etc. Most people who invest in Residential property but don't stay in it usually rent it out to other homebuyers looking for a similar property. The purpose behind this is to generate income from the property in the form of rent received.
If you are willing to buy a Residential property, there is a list of things mentioned below that must be given due consideration while buying one. Have a look:
- House must be adequately ventilated
- High-quality fittings and fixtures
- There must be enough space available for all the compartments of the home
- The height of the ceiling must be at least 10-12 feet high
- Entire space must be perfectly utilised
- Materials used for construction should be of excellent quality
As you have got to know the meaning of Residential property, let's now learn about its types.
Types of Residential Properties
The most common types of Residential properties are as follows:
1. Stand-alone house
A stand-alone house is a type of house that is a free-standing residential building. These Residential properties are also known as detached houses, detached residences, single-family houses, and single-detached dwellings.
2. Mobile home
As per the name, Mobile homes are houses that can easily be moved from one place to another. Most common examples of these houses involve park homes, motorhomes, trailer homes, etc.
3. Multi-family Residential
Also known as a multi-dwelling unit or MDU, Multi-family Residential is a Residential property where there will be multiple separate houses for Residential purposes inside one building. These houses can be built either on the top of the other or one next to another. Some of the most common examples of Multi-family Residential houses involve apartments, condominiums, cluster-house flats, etc.
Lastly, Duplexes are the housing type where one home has two separate or distinct dwelling units. Both these dwelling units have two separate entrances but a single structure.
Advantages of a Residential Property
The top 3 advantages of owning a Residential Property are as follows:
1. Hassle-free purchase process
From the start till the end, the entire process of purchasing the Residential property is pretty convenient and hassle-free compared to Commercial properties. While buying Residential Property, you won't have to wait for the property approvals. Apart from this, in terms of legal formalities, buying Residential Property is far less time-consuming and complicated than other property types.
2. Comparatively lesser cost
Undoubtedly, Residential properties are affordable housing options. Unlike Commercial Property, Residential Property comes at a budget-friendly price because of its high demand in the Indian real estate market. Moreover, the home loan interest rates for Residential properties are low at all times, thus making it less costly than Commercial Property.
3. Exponential growth in future
Because of the high need for housing in a country like India, there will always be an enormous demand for Residential properties. According to a study, most people will prefer to buy a home rather than invest in other options, as buying a home gives them a sense of security.
What is Commercial Property?
Another category of the real estate sector is Commercial Property. Commercial properties are the properties that are used for profit-generating activities and not for Residential purposes. The non-Residential purposes here involve hotels, business, retail, office, industries, public facilities, etc.
To put it simply, we can say that Commercial Property is a property used to run businesses. The owner of such property can use the property by himself for business purposes or rent it out fully or partially to the tenants who want to run a business. The main aim of buying a Commercial Property is to generate a profit either from rental income or capital gains.
If you are planning to buy a Commercial property but don't know what all things you must consider before buying one, then here's a list of things to consider:
- Infrastructure facilities must be available
- Different modes of transport must be available
- The growth potential of the property
- Connectivity to major commercial and industrial hubs
- Availability of industries around the property location
Types of Commercial Properties
The most common types of Commercial properties are:
1. Retail buildings
Retail buildings include mall grocery stores, shopping centres, power centres, restaurants, and much more.
2. Office buildings
Office buildings as a type of Commercial Property involve small professional office spaces, downtown skyscrapers, single-tenant buildings, etc.
This involves undeveloped, raw or underdeveloped land which will be used for commercial purposes in the future.
4. Multi-family buildings
Multi-family buildings include complexes or high-rise apartments.
Finally, this includes all other commercial buildings involving hospitals, medical, self-storage developments, etc.
Advantages of a Commercial Property
Wanted to know the advantages of Commercial Property? Have a look at the top 3 advantages below:
1. High Return on Investment
The Return on Investment in Commercial properties is higher than Residential properties because the Commercial properties are usually located in prime locations.
2. Low maintenance costs involved
The amenities offered in Commercial Property are less in comparison to the ones offered in Residential Property. As a result, the maintenance costs are low.
3. Reliable tenants
You might have heard about the weird stories about tenants in houses and apartments. But the tenants of Commercial Property are reliable. As the tenants are earning their own income from the property; it is in their best interest to keep the Commercial Property in good order and maintain a harmonious relationship with the landlord.
As you have got to know the details of both Residential and Commercial property, it's now time to spot the differences between the two. Have a look at the difference between Residential Property and Commercial Property in the upcoming segment of this article.
Residential Vs Commercial Property- The Differences
For better reader understanding, we've listed the differences between Residential and Commercial Property on the basis of multiple factors.
1. Formalities in purchasing:
Residential properties are much easier to buy compared to Commercial properties because the formalities in Residential Property are less than that of Commercial Property. Moreover, the Commercial Property owner has to undergo multiple amounts of investigations before investing.
2. Risk profile:
In Residential properties, the rent period is short, whereas Commercial properties are leased out for a long period of time and thus give stable income to the owner. Also, the notice period is short in Residential properties; hence the tenant may leave soon. But this is not the case with Commercial Properties as they have a longer notice period.
The loans for the Residential Property are provided for the individual owner only, whereas the loan will be provided for the business entity in the case of Commercial Property. Also, the paperwork and procedures for a Commercial Property loan are lengthy and require multiple documents, which is not the case with a Residential Property loan.
The Residential property need not be in a prime location as it is built to reside only, whereas the location plays a great role for Commercial Property. The reason is multiple factors like water, amenities, transportation facilities, etc., affect the running of the business.
The Residential legislation supports tenants over the owners; therefore, it can be quite difficult to evict the tenants. Conversely, the lease or rent of the Commercial Property is decided and agreed upon by both the parties involved with contract law.
For both types of properties, you are required to sign either a lease or rent contract in order to use the property. But in the case of Residential Property, the rental contracts are signed for a short duration and are less complex. On the other hand, the contracts related to Commercial Property are in-depth and complex. Also, they are signed for the long term.
Here we have come to an end! This article provides an in-depth insight into both Residential and Commercial properties. If you are a beginner in the real estate market and want to invest in real estate property, then investing in Residential Property is a perfect option for you to go for. Purchase some Residential properties first, gain some useful experience, and then you can move ahead to buy Commercial properties because the risk involved in Commercial properties is higher. So, get ready to make a wise investment decision.