Commercial Investment Series - Commercial vs Residential Investment

Commercial versus Residential property investment

Commercial

Residential

Higher yield - 5-10% yield

Lower yield - 3-4% yield

Long term leases – average 3-5year leases or even longer 5-15 years for blue chip tenants

Shorter term leases – 12 months average

Lower capital growth – value reflective of the length and type of lease

Higher capital growth – value reflective of land values

Longer vacancy periods

Shorter vacancy periods

Lower outgoing costs – tenant pays for outgoings and general maintenance

Higher outgoing costs – landlord pays for outgoings and maintenance

Less management intensive – tenant usually responsible for the tenancy

More management intensive – landlord responsible for the tenancy

Higher investment costs – more equity required due to higher purchase prices and higher LTV, higher interest rates, higher set up fees

Lower investment costs – lower equity required due to lower purchase prices and lower LTV, lower interest rates, lower set up fees

Higher lease costs and more complex – generally a solicitor will need to be involved

Lower lease costs and less complex – generally done by an agent

Annual fixed rent increases – CPI or fixed %, predictable increasing income

No fixed rent increases, usually connected to inflation, not predictable, can go down

Large tax effective, particularly depreciation benefits

Tax effective benefits