Commercial or Residential Properties? - A Beginners Guide for Real Estate Investment

Real estate investments and their returns fascinate everyone. After all, who wouldn’t want to multiply wealth through promising investments?

But choosing where to invest confuses many, especially novice investors. They are in a dilemma – whether to invest in commercial real estate or choose a residential property in Pune. The answer is subjective and requires discussion. So, let’s evaluate commercial and residential real estate to help beginners choose.

Evaluating Commercial Vs. Residential Property for Beginners

As a beginner investor, you must thoroughly evaluate a property to make the right choice. The evaluation isn’t about which one is better, as the decision depends on your situation, budget, investment objectives, and the returns potential of a particular property type in your city. But knowing these differences can at least help you embark in the right direction.

We’ll now consider weighing residential and commercial properties in Pune based on a few essential parameters. Although the answers vary from city to city, the parameters usually remain the same.

• Location:

  Location is a broad topic of discussion, and its advantages and disadvantages vary greatly. Let’s look at a few instances that signify the importance of location.
  
  For instance, a residential property in a distant suburban area or a relatively isolated location near an industrial zone may help you fetch better rental returns. But you may not expect as much property appreciation in such areas, where people prefer renting over buying.

  However, if you choose a location at a prime or a rapidly developing property, you may enjoy greater rental and property appreciation.

  On the other hand, commercial property is very location-specific, no matter whether you look to rent it or sell it after a few years. It is because people buy or rent commercial properties from the viewpoint of their business.

  People in B2C businesses would always look for prime locations amidst residential townships. But B2B business owners would always look for properties that are easily accessible and those help them balance their investments and returns. So, even if not necessarily prime, such tenants or buyers look for locations relatively easy for their customers to visit.

• Availability of Tenants

  Often, people buy residential and commercial properties. But their properties remain vacant for a long time, as they do not get tenants. Of course, various reasons are responsible for it, including the current market situation. But most fail due to a lack of research and thorough property evaluation.

  So, the key to making a prudent investment choice is to assess the property and the location’s potential. There’s no point in investing in a property that remains vacant for a long time and proves to be a liability rather than an asset.

  Thus, evaluating a property’s current and future demand in a particular location is also important. For instance, buying a commercial shop in the interior lanes of a particular area wouldn’t help as much, as commercial tenants mostly look for road-touch properties. So, finding a tenant may turn out to be challenging.

  However, buying a residential property can prove beneficial, as tenants don’t mind renting apartments or homes in the interiors, as long as it is accessible.

  So, again, the location matters. Thus, reiterating, you must evaluate a location also from the viewpoint of the properties in demand and invest accordingly. It can help you start rental income or returns relatively quickly.

• Return on Investment

  This is the most crucial part, as it drives investment decisions. But as a budding investor, you must get returns on investment computed through a professional realtor. It can help you calculate the money you may potentially earn against a particular property.

  For instance, in Pune, from the appreciation perspective, residential properties yield an average investment return of about 4-5 percent. Whereas their commercial counterparts help derive a healthy 10-12 percent return.

  But commercial properties excel when it comes to rental returns as well. In thriving business locations, you may expect a healthy return of 5-7 percent yearly, whereas, with residential properties, it is barely 3-3.5 percent per annum.

  Nevertheless, the returns depend on the property’s location, the quantum of demand, the current and future growth rate, infrastructural development in and around the area, and various others.

  While investing in a commercial property proves useful from the returns perspective, you must choose depending on your budget – which is precisely the next point of discussion!

• Property Cost

  Commercial properties are a lucrative investment. But what if buying a commercial property is beyond your budget? Even a small commercial shop could be substantially priced, depending on its location.

  Usually, commercial properties are more expensive than residential ones. Hence, although promising and more profitable, buying a commercial property may require a lot of financial workarounds.

  Residential properties aren’t as expensive. For instance, depending on your situation and financial standings, you may easily buy a 1 BHK on loan in a residential area near an IT park or industrial area and earn rent.

• Risk Factor Involved

  Commercial properties are at a higher risk compared to residential. One of the most significant risks is stereotyping. For example, if you buy a commercial property in Pune in a location dominated by jewelers, you may narrow down your tenant type. So, for a garment seller, even if your property is the best-suited one, they may refrain from coming to you, given the market around them.

  Although it doesn’t mean you shouldn’t buy commercial properties, you must be careful while selecting the location and the kind of businesses. The dominance of a particular business type may prove to be a bit risky, as it could reduce the scope of your prospects.

  With residential properties, this isn’t as serious a concern. But still, the property’s location shouldn’t restrict you to a particular type of tenant.

• Clarity, Research, and Patience Matter!

  As an aspiring investor, the availability of several options could be overwhelming and all the more confusing for you. But before evaluating and choosing something, you must know what you want. Ideally, you shouldn’t let options drive your choice. It should be the other way around.

  Search and filter options that match your choice and your investment objectives. Research them thoroughly. Seek an expert’s help if required to help you make the right choice. Give yourself time and avoid making decisions in a hurry.

  Besides, keep patience while you get the right tenants for your property. Consistently market it across the target groups to help people know about the property and approach you.

KWT – A Promising Commercial Property in Pune

Looking to buy a commercial property in Pune? Choose Kohinoor World Towers. With excellent connectivity, various small-, mid-and large-sized offices, and a strategic location between Pimpri and Chinchwad near Pune, KWT could be the right choice for your commercial investment.

Call +91 20 6764 1818 to know more.