Most investors often have a hard time deciding which is a better real estate investment – commercial real estate or residential real estate. Truth be told, both type of real estate investment offers its own set of benefits as well as challenges. However, the path an investor chooses to take will depend on their goals, risk tolerance, liquid capital, and time.
In this article, we will be looking at both types of real estate, their advantages, disadvantages, and why commercial real estate is riskier than residential real estate. But first of all…
What is commercial real estate?
Commercial Property refers to buildings and land that are intended for profit-generating activities rather than regular residential purposes. It is anything with five or more units. In other words, office, retail, industrial, multifamily (of five units or more), hotel, and special purpose buildings are considered commercial real estate.
Benefits of Investing in Commercial Real Estate
Better Return On Investment:
Commercial real estate usually has better returns and cash flow compared to residential property. Because residential buildings are mostly built for business purposes. Hence, they are built with more space to accommodate many tenants more tenants, thus making more money.
Longer lease terms:
Residential leases typically run for a period of 12 months. However, a commercial lease could run even up to 10 years. The advantages of a longer lease are lower turnover costs, lower vacancy rates, and a higher guarantee of reliable cash flow. However, long lease terms have their disadvantages. If the owner of a commercial property is not happy with a tenant, they might find it difficult to make them leave if the lease is still valid. This is a factor you should put into consideration when leasing your property. Do not lease it out for too long in other to avoid being stuck with a tenant with bad behavior.
Faster Property Value Increase:
One of the factors that determine the value of a property in real estate is the location of the property. And this is the biggest difference between commercial and residential property. While residential real estate is largely influenced by comparable properties, commercial real estate is more directly impacted by how much revenue it generates.
What is residential real estate?
Residential real estate refers to any property used for residential purposes. It may contain either a family or multifamily structure. Examples include single-family homes, condos, cooperatives, duplexes.
Benefits of residential real estate:
Larger Buyer And Renter:
As the population of Nigeria continues to increase – Lagos state especially. There is a need for more buildings to cater to this growing population. So there is always a high demand for residential buildings to either rent or buy, Unlike commercial real estate – which relies on businesses.
Performs Better In Economic Crisis:
Businesses are often the first to experience the costs of an economic downturn, which can affect commercial investors in a few ways. First, commercial property owners hoping to attract tenants while the economy is in decline may find marketing the property to be particularly challenging.
Why commercial real estate is riskier than residential real estate in Nigeria
As Nigeria continues to battle the coronavirus pandemic, the economy has taken a downturn, which has affected businesses and in turn affected commercial investors in a few ways. First, commercial property owners hoping to attract tenants while the economy is in decline may find marketing the property to be particularly challenging as some companies now prefer their staffs working from home.
Although residential real estate does take a hit as well – tenants struggle to meet up with payment of house rent. As a residential real estate investor, you may not feel the impact of the economic downturn and if you do, it will be minor.
As you can see in this article, both types of real estate investment have their benefits and drawbacks. So the path an investor chooses to take will depend on their goals, risk tolerance, liquid capital, and time.
However, In a country like Nigeria – whose economy is not stable, investing in residential properties is much more beneficial than investing in commercial properties. And it is also simpler for most real estate investors (especially beginners) to understand.
To start your residential real estate investment in Nigeria, you need to first acquire problem-free property(land/house). And to own a problem-free property in Lagos state, contact @Bethel realtors & management Ltd Suites 201 & 202 Akord shopping plaza bogije, Elemro Ibeju-lekki, Lagos state. You can call/whatsaapp us on 09024554979, 08131691155