In real estate investment, the choice an investor has is either investing in residential property or commercial property. But there are some differences in these two types of properties. Let’s explore the fundamental differences between residential and commercial properties.
Both are great investment options
The Real estate market is a combo of both buyers and sellers. In India, most people invest in residential properties as there is a huge demand for housing units. People investing from various continents prefer in buying residential properties due to good rental returns. This seems advantageous to invest in housing units as they can earn rental incomes, though they do not prefer to occupy. Investors buy housing units such as an individual house, flats, apartments/flats and multi-storey houses or villas.
When you look at these two options as an investment, both residential and commercial property has a greater impact on net worth. Commercial properties benefit an investor only if he chooses to buy in a good location. All the non-residential properties like factories, rental shops, office etc are some of the commercial properties. Henceforth, the impact on these two options is great in investment perspective.
Commercial property returns solely based on the location
While investing in commercial property, be careful where you invest. The profit wholly depends on the location for commercial. But for a residential property, location does not have a high dependency. Be it a small town or a posh locality, residential properties are high in demand. But there is a slight difference with good rental income. But, this is not the exact scenario in commercial property. Though the location is important for residential property, any wrong move in deciding the location for commercial property would swallow your entire sum. If lucky, the location is good then the commercial property would gain you higher resale returns than residential property.
If you invest in commercial properties in locations like OMR, T Nagar and Nungambakkam, it would fetch you high resale value. Also, some locations are best for both residential and commercial projects. In Chennai, OMR is touted as the IT hub of Chennai leading way both residential and commercial properties. So, people working in these IT parks hunt for flats in OMR to stay. This is why investing in residential properties brings you good rental incomes in areas like these in Chennai.
The initial cost of investment in residential is cheaper
The initial cost you invest to buy a residential property is less than commercial property. The loan you avail is also higher for a residential property than commercial. You can avail up to 80% of the loan for the residential property. For commercial it is only up to 60%. If you buy a plot which is DTCP approved, you could repay the loan amount with zero interest. This is the most prominent thing land buyers must know.
Also, the interest rate is high for commercial property than residential one ranging from 2% to 4%. Finally, the tax benefits are included in residential properties. Due to the lack of tax benefits in commercial properties, this evidently sets residential properties with more benefits.
The ups and downs
The profit gained from the commercial property is higher than the residential property. But what if the location you choose goes wrong in commercial property. This results in a huge loss in real estate investing. But if you choose to invest in commercial properties in good areas like OMR, would fill your bank accounts. Investors, who already bought a residential property, could invest in commercial property for second investment.
In case of first investment, buying residential properties like individual house, flats and villas in Chennai OMR are a good choice. Also, it is recommended to buy a commercial property if you have residential to gain financial returns with huge sum in hand.