When you start investing in real estate, you will be in a great dilemma in deciding which could be the best property to invest in between commercial and residential properties. Risk and returns are the key determining factors when considering investing in these properties.
Risk and return in residential properties are balanced and best suited for people starting the journey. According to CEO Username Investment limited, this is one of the leading real estate companies in Nairobi, Kenya.
In this article, we will look at the reasons why residential properties are best preferred to kick start wealth accumulation at an early stage.
Commercial properties are best developed in busy streets where the capital value remains the same over a long period. This makes it hard to double earn through capital gain and rental income. Unlike residential property, which is less located in busy streets, land appreciation is often inevitable within 2-3 years. This is why it is advisable for novice real estate investors to consider residential properties before graduating to commercial properties.
In addition, commercial properties tend to affect the most in terms of tenants’ occupancy, especially during pandemics like COVID 19 currently being experienced. This is because businesses close down during a significant economic crisis leaving you with no rental income. On the other hand, rental properties are often highly occupied. This is accredited to a continuous increase in population, creating a demand for residential properties.
Flipping commercial properties tend to take a sometimes as compared to residential properties. This is because the commercial documentations contracts are complex in analyzing and marketing. Also, matching the needs of buyers and existing property is often challenging.
One advantage of commercial property is that it has excellent returns from rental income compared to residential properties but carries the highest risks.
In conclusion, commercial properties are a bit risky for novice investors based on the above reasons. However, based on your needs and your future goals, you can choose what best suits you.