If you’re ready to start investing in real estate, the next decision you’ll need to make is which type of real estate makes the better investment. There aren’t any right answers and your decision will largely be based upon the market in your geographical area. However, there are other factors to consider that are universally true throughout the country.
As the owner of the property, you’re responsible for its upkeep and the significant repairs that will help keep it operational and safe. In terms of residential properties, which include multi-family homes, duplexes, and townhouses, this is a less complex task. You can probably handle most tasks yourself, but, even when you do need to call a contractor, there won’t be much involved in making standard repairs.
Conversely, an office building, shopping mall, or a large apartment community will require a greater commitment to resources. In addition to meeting the needs of multiple tenants, you may also be required to conduct more significant repairs. For example, a problem with the HVAC system in an apartment building will require more extensive and time consuming work than that which is required in a duplex.
A residential property will see a higher turnover rate than a commercial property. Business owners are looking for a place to operate their business and, once they set up shop, they will be reluctant to relocate. On the other hand, residential tenants rarely stay in the same unit for several years. Many renters are saving up to buy a home of their own, or financial hardships may force them to vacate. In either situation, it’s common to lose residential tenants in a year or two.
While the types of tax breaks you can claim will vary, both residential and commercial properties offer comparable discounts on taxes. To determine the specific breaks you can claim with the properties you own, you should consult a qualified tax attorney in your area. In general, you can claim deductions for repair costs, management tasks, loan interest, and the depreciation of the property.
If you plan to invest in multiple properties, you may have the option to add both residential and commercial properties to your portfolio. As long as you do the proper research and buy properties that offer the most potential, there’s no reason a mix of real estate types can’t prove lucrative. In an economic downturn, owning both types of properties can work in your favor by giving you the resources to leverage your finances through tough times.