Commercial or residential, look at your finances

Real estate, both commercial and residential, are considered to be great investment vehicles. Either avenue can have a tremendous impact on your net worth. However, a majority of people think only of residential property when they think about investing in real estate. While this is certainly the most viable route for many people, commercial property can offer

additional benefits that residential real estate cannot.

What are the differences between residential and commercial properties?

Although the principles of investing are the same, one should be aware of advantages and disadvantages of both. The factors that determine the differences between residential and commercial real estate are cash flow, rentals, tenants, propertyvalue, financing, etc.

Residential tenants are mostly available, regardless of the economic condition. This is because most people want to live and rent in places close to their friends, families, job location, educational institutions, etc. Commercial leases are also powerful when it comes to rent payments. Unpaid rents can result in rent penalty and consequently eviction.

It is easy to sell houses than commercial lots because demand from buyers is always there. It is possible to buy a residential property with a small down payment and getting 80 percent mortgage financing from the bank. Most banks are willing to lend more for the housing market (around 75 per cent or more) but less on commercial market (60 per cent or less).When it comes to mortgages, residential and commercial loans are again different, with various financing options catering to each type of investment.

Rental lease is fairly standard, short and easy to understand in residential properties. Landlords and tenants do not have difficulties in understanding these documents, whereas in commercial properties, the lease document itself is quite long, containing many clauses. One needs to study the lease carefully and understand the terms with the help of a competent lawyer.

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