Contrary to popular belief, commercial property investment is not just for institutional investors. The commercial property market offers appealing yields and price points but if it’s stability and ease you’re after, perhaps a residential investment is for you. We’ve outlined the key differences here:

Feature

Commercial Property

Residential Property

Leases	Longer leases, which has a major effect on property value. However, lease agreements can be complex and require legal/financial advice.	Turnover of tenants can be higher, however residential lease agreements are simpler.
Demand	Vulnerable to economic shock and long vacancies. A sensitivity to changes in demands for good and services, infrastructure etc. is inherent.	Demand for housing is more stable than commercial property, leading to much shorter vacancy periods.
Yields	Higher yields between 5-12% in office, retail and industrial properties mean many commercial investments are cashflow positive after interest payments. However, this often comes with much higher risk.	Residential investments typically return a 2-3% yield meaning it is harder to run your investment as cashflow positive, however there is less volatility.
Maintenance	It is more likely that tenants will sign net leases, meaning they are responsible for outgoings like council rates, insurance, land tax, maintenance, repairs etc.	As a landlord of a residential property, you will be billed for any property costs and maintenance that occur.
Tenant Quality	As tenants typically pay for upkeep of a commercial property, and run their business out of it, they are incentivised to keep it in good working condition.	Tenants can vary in quality and may inflict varying degrees of wear and tear on the property they are living in, some of which you may need to pay for to repair.
Due Dilligence	Commercial property investements require much more research and in-depth market and economic knowledge before purchase.	The process of determining a good residential investment is more straight-forward with more accessible resources.
SMSFs	For those with Self-Managed Super Funds, you are potentially able to purchase and work out of the commercial property you purchase.	If purchased using a SMSF, you are unable to live in the residential property you have purchased.
Financing	As commercial property comes with higher risk, financing often comes with stricter terms, including higher deposits (sometimes up to 50%) and higher interest rates and fees.	Like finding a property, financing a residential investment is a comparatively more straight-forward home loan process.

Commercial Property

Residential Property

Leases

Longer leases, which has a major effect on property value. However, lease agreements can be complex and require legal/financial advice.

Turnover of tenants can be higher, however residential lease agreements are simpler.

Demand

Vulnerable to economic shock and long vacancies. A sensitivity to changes in demands for good and services, infrastructure etc. is inherent.

Demand for housing is more stable than commercial property, leading to much shorter vacancy periods.

Yields

Higher yields between 5-12% in office, retail and industrial properties mean many commercial investments are cashflow positive after interest payments. However, this often comes with much higher risk.

Residential investments typically return a 2-3% yield meaning it is harder to run your investment as cashflow positive, however there is less volatility.

Maintenance

It is more likely that tenants will sign net leases, meaning they are responsible for outgoings like council rates, insurance, land tax, maintenance, repairs etc.

As a landlord of a residential property, you will be billed for any property costs and maintenance that occur.

Tenant Quality

As tenants typically pay for upkeep of a commercial property, and run their business out of it, they are incentivised to keep it in good working condition.

Tenants can vary in quality and may inflict varying degrees of wear and tear on the property they are living in, some of which you may need to pay for to repair.

Due Dilligence

Commercial property investements require much more research and in-depth market and economic knowledge before purchase.

The process of determining a good residential investment is more straight-forward with more accessible resources.

SMSFs

For those with Self-Managed Super Funds, you are potentially able to purchase and work out of the commercial property you purchase.

If purchased using a SMSF, you are unable to live in the residential property you have purchased.

Financing

As commercial property comes with higher risk, financing often comes with stricter terms, including higher deposits (sometimes up to 50%) and higher interest rates and fees.

Like finding a property, financing a residential investment is a comparatively more straight-forward home loan process.

If you’re not sure which type of investment is right for your financial circumstances, or you’re open to investing in a combination of property types, choosing a credit advisor with expertise in both commercial and residential investment lending is key to ensuring your finance maximises your investment.

Chat to us about FundingPro’s extensive experience in structuring residential, commercial and private finance here.