Commercial vs Residential: What Makes Commercial Real Estate the Superior Investment Option?

Commercial vs Residential

Commercial vs Residential: What Makes Commercial Real Estate the Superior Investment Option?

Wealth creation is the primary goal of every investor. However, just like understanding world requires constant reading of the news, understanding real estate investments requires a thorough understanding of the market. 

Knowing the market inside out is a sure-fire way of ensuring you continue making high returns. Collecting expertise on the functioning of the real estate market gives you insights about trends and what you can expect. 

However, a simple understanding is that the market depends on whether you are buying or selling. 

Suppose you want to buy and want to know which property to invest in: residential or commercial? A well-experienced, reputed investor like Chetan Kapur or CK would always choose commercial over residential.

But that is only after following the golden rule.

The Golden Rule: Buy Your Own House

CK believes that the only residential property you should buy is for yourself. Owning a house and, therefore, some property, is a point of pride for several Indians, as it should be.

The land is a limited resource that finds itself scarcer and scarcer in an ever-growing population. This scarcity also means more people are in the market for a house of their own.

So, you may think, aren’t residential properties better investment opportunities?

There are several reasons commercial properties outdo residential properties in terms of market value. The kind of wealth commercial investments give you is nearly three times what you can get from residential investment.

But, before going into the numerous reasons CK says his decade of experience has taught him commercial investments are better, let us reiterate the importance of owning your own house. Once you own your own home, there is a kind of security you have. You will always have some solid asset regardless of how your investments fare. And every single rupee of that security is entirely worth it!

So, why are we saying buy yourself a house but do not lease it?

Commercial vs Residential: What makes commercial better?

Buying a house for yourself is also an investment in itself. Investing in yourself is still investing; it just yields zero returns.

However, this is easily remedied by making commercial real estate investments after buying your residential property.

With prices of real estate constantly on the rise, residential real estate seems like a better idea but here are a few reasons commercial real estate is a far better bet.

 

  • Greater Returns

At the top of the list, commercial investments yield far better returns than residential investments. You can get returns up to 8-10% per annum compared to the residential rate of 1-3%. 

When you consider the second point, this perk is further driven home. 

 

  • Commercial is Cheaper

Residential real estate in good locations, i.e. metropolitan cities, tends to begin in the crores. This makes investing in it highly expensive with a meagre return rate. 

In contrast, commercial real estate is far cheaper, starting as low as Rs. 25 lacs with that incredibly high return rate. Automatically, commercial real estate becomes a more attractive option!

 

  • Increased Capital Appreciation

Demand and supply share an inverse relationship in the commercial vs residential debate. There is a surplus of residential real estate leading to an average capital appreciation.

In complete opposition, there is a much higher demand for commercial spaces which gives commercial real estate an automatic edge and a higher capital appreciation rate.

 

  • Duration of Tenancy

The cash flow from commercial investments is more reliable due to longer leases. While residential leasing involves contracts valid for 11 months, commercial agreements are generally valid for up to 9 years. 

Now that you see the reasons laid out before you, understanding why CK advocates for commercial investments is straightforward. There are far more pros in commercial investments with more reliable and long-term rental income. However, regardless of the kind of investment you choose, bank loans are always available, so you do not source all the money from your pocket!

At CK Investments, we ensure you get the best investment opportunities with the highest returns. We help you build a diversified portfolio that keeps your cash flow steady and dependable. With our help, you make safe and secure commercial real estate investments in the best properties, getting the highest possible returns from them!

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