Differences between commercial property and residential property development when buying to let

There are two major categories of property to invest in: Commercial Property and Residential Property, and while the principles of investing remain the same, various factors determine certain differences between the two categories when buying to let. Some of the most important factors to take into consideration are tenants, property value, financing and lease documents. Based on these factors, let’s take a look at why residential and commercial properties are different.

Regardless of the economy, residential properties will always generate cash flow, as tenants are always available – however this is somewhat more lucrative in commercial developments, where lease periods tend to be longer. That said, short-term tenants are often more favourable, should you decide to eventually sell your property.

You should also consider that the value of any property can change over time. For example, while commercial tenants may appreciate new developments/businesses around them, any construction work near residential property may deter future tenants.

It is therefore important to consider vacancy costs and while there are costs involved with both types of property, these are normally higher for commercial buildings. You should therefore consider your financial situation and whether or not you can afford to not only maintain but also secure a vacant property. While landlords are always responsible for installing the relevant security measures for their property, vacant properties are often more vulnerable to vandalism and/or intrusions.

Lease documents are therefore important and often longer in commercial letting; while tenants in residential properties normally renew their lease on a 6-12 month basis, commercial tenants often lease properties for as long as 3-5 years. Most importantly, lease documents determine rent and allow you as a landlord to take action in the event of missed payments.

While many choose to develop residential property before stepping on the commercial ladder, the decision is yours. There are differences between the two, yet neither is better than the other, as whether you are developing to buy or sell, commercial and residential properties serve different purposes and the decision should be based on your own goals. While there are strengths and weaknesses involved with both, the above factors are just some of the considerations you should make when developing commercial or residential properties.

Sourcing the right development for you is very important and something we cover in our training courses – Call us today on 01698 652630 and join us on our next course.

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25/26 Aug