The crisis of COVID-19 significantly affected both the business and the real estate market. And the main question facing “micro” and “middle” investors is which is more profitable: commercial or residential real estate. The answer to it will not be unambiguous.
Residential real estate is clearly segmented: primary and secondary markets, apartments, luxury apartments, houses and cottages, economy, business and premium classes. Segmented and commercial real estate:
- Narrow-profile buildings: cafes, restaurants, banks, etc.
Therefore, to decide whether to buy commercial real estate, you need to decide: will it be an investment in your own business or a rental income?
It is logical that the person who acquires the premises for the business is able to calculate their income and expenses. But in practice, many representatives of small businesses (especially in the retail sector) do not always calculate whether their store will make a profit if the company has to pay rent + utility bills and other expenses.
What does this mean? The store pays off. But investments in the room do not pay off. Is such an investment profitable? No, although outwardly everything looks quite acceptable. This is “business for business.”
The money spent on the purchase of their business center in Delhi could bring much more profit if put into circulation.
The second problem that the owner will face is the inability to assess the potential of the area. He does not know (or does not take into account) which objects will be erected here in the next 3-5 years.
Meanwhile, the opening of a large hypermarket in the neighborhood, the transfer of a bus stop, the closure of the metro exit can “kill” your own business.
Premises as rental income
In this case, the investor expects to receive monthly income from the rented property in Delhi, while the room remains its asset. For a long time, residential apartments remained the most popular type of such investments, however today their payback period has increased significantly, and profitability has fallen.
Commercial real estate wins in this regard: its payback period is 7-10 years against 20 for apartments. But both options have their pros and cons.
Entrance ticket to this market is lower than in the commercial segment. Traditionally, apartments are bought for children, and while children grow, rents are a good help for the family budget.
A similar option is also chosen by people who want to ensure a quiet retirement life- they rent out their property and live on rent.
The advantages also include the fact that professional experience for renting an apartment is not necessary (which cannot be said about the store or office). Moreover, companies that professionally manage residential real estate operate on the market today- if necessary, they can be entrusted with the management of the apartment.
The third advantage is liquidity. An apartment or apartments is easier to sell. How easier it is to purchase housing at the construction stage, which means to save on the purchase. The fourth advantage is the ability to rent housing.
Is it profitable to buy commercial property?
In terms of payback – yes, of course. With one caveat: if this property is liquid. The trend of the last 20 years has been the purchase of apartments (or premises) located on the first floors of houses under construction.