Real estate in Pakistan is becoming one of the most profitable businesses because of the infinite cash flow that comes with it along with the financial freedom. Every investor is getting competitive and all of them are hoping to secure good returns in the long run. As an investor, you need to identify which property type is better for you. Pakistan has a few types of properties in Pakistan, two of which are commercial and residential. If you are looking for answers, which property type should you invest in, if commercial properties are more lucrative than residential properties then you have come to the right place.
Difference Between A Commercial And Residential Property:
Residential real estate is single-family houses or one to four units that are used for residential purposes, whereas in contrast, commercial properties are anything that is more than five or six units. Commercial properties are an umbrella time that involves different parts of the market such as retail, offices, and industrial properties. The purpose of residential properties is to accommodate or for some investment with condos, duplexes whereas commercial properties have more purposes that are just not to accommodate individuals but also involve offices, shops, hotels for business purposes.
Another difference between these properties is the type of tenants or consumers each building has. When it comes to residential properties, these properties are typically leased to families and individuals only whereas with commercial properties these properties are leased to business professionals.
How to choose between Commercial Real Estate vs Residential Real Estate?
Now that you have read some key differences between these properties, now we will look at the benefits an investor gets from these properties. Investment is dependant on the risks that are involved and the goals. Every investment comes with a risk of potential loss such as if a property does not have ample tenants or if the returns are not amplified. After going through these benefits, you can decide for yourself which investment is better for you. Sometimes, the answer doesn’t have to be yes or no, but it is worth exploring these options after going through in-depth analysis then you can decide!
RESIDENTIAL PROPERTIES BENEFITS:
Low Cost of Entry: Residential properties have a lower cost of entry with fewer complications. If you are starting your investment you can try to avail this option. The best option for you is to collect as much money as you can from residential properties then you can move further to invest in commercial properties.
Wider Buyers and Renters: Everyone needs a place on their own where they can live. Residential properties automatically become the best investment option as you will have a wide range of tenants that are interested in your residential property than commercial real estate properties. There is a high demand for the residential areas which makes it a very lucrative opportunity for investors.
Decreased Tenant Turnover: When it comes to residential owners, they look for long-term contacts and the tenant turnover is not something that is dealt with often. The business is changing day by day and with this kind of volatility, it is always difficult to keep the tenants for a very long period of time which is why a lot of work has to go into searching for the right tenants. Whereas on the other if you find a tenant who is planning to stay for a long term then it’s guaranteed that they will treat the property as their own.
Easy-Going Laws: The owners of residential property owners have a lot of freedom when it comes to design and structure rental agreements for which is it easy to build a residential home with fewer planning permissions required. The residential laws are less complex which is why it is a better option for you to invest in residential properties.
COMMERCIAL PROPERTIES BENEFITS:
High Return on Investment: Commercial real estate has the potential to provide you with a high ROI as compared to residential investing. If your commercial property is located at a prime location that is attractive to a lot of customers then you will have a high return on investment. Any successful businessman will look for a prime location that has useful amenities for the people. This is because it is easier to increase the values of the commercial market over time as if your shop generates a lot of revenue then selling it to the next owner is going to be a lot beneficial and easier than adding an extra room to a residential property to boost the price.
Accurate Tenants: With commercial real estate, the tenants are mostly the business owners and they have back support from larger companies. They provide great customer service which is why they respect your property. Whereas with residential properties, the tenants don’t look after the property as their own.
Long Term Contracts: Commercial properties have longer leases as compared to residential properties. All the commercial properties have leases that are from at least five to 10 years. For investors, it means lower turnover costs and vacancy rates. The long-term contracts are reliable, with positive cash flow for those who are worried about marketing a property from year to year.
As an investor, it is important for you to know and think about the goals that you are trying to achieve. Residential properties offer a lower barrier of entry which provides stability for the investors whereas if you are looking to build wealth that has financial freedom then commercial real estate investment would be good for you. If you are low on capital then you should opt for residential investing but if you want to earn more and better ROI then the commercial investment is best for you.