Property investment: business vs residential units
For those who are new in property investing, this is perhaps one of the dilemmas that they always face – whether to invest in business premises or to invest in residential units.
Normally people would invest in residential units because they tend to be cheaper (generally speaking) and there are also more options for them to choose if compared with business premises (shop lots, office units, etc). However, they may change their mind once they realized that the profit margin tends to be higher for business premises.
Yes, you CAN earn more by investing in business premises, sometimes significantly more than investing in residential units. But, as with everything in this world, there are pros and cons to each of them.
Business premises
+ A good tenant can easily helps you to pay off your loan and at the same time, helps look after your unit for a long period of time. For example, banks, and franchised outlets.
+ If you happen to buy the unit in a very good location, you can expect to earn more than 40%. For example, those who bought a shop lot in Kota Damansara when it was first launched could easily earn a 200-300% profit now.
- Most anchor tenants like banks are pretty hard to get. Most of the time, it is the property developers themselves who are able to engage them as tenants.
- Business premises tend to be priced higher than residential units.
- Maintenance fees and the utility charges are also priced higher for business premises.
- A lot of speculations are involved when investing in business premises. You invest in one place at a cheap price, and hoping that the location will become popular in the near future.
Residential units
+ Priced lower than business premises.
+ Maintenance fees and utility charges are sometimes lower (certain properties fall under the commercial rates though).
+ Easier to find tenants as the demands are higher for residential units, as long as you don’t ask for ridiculous rental price.
- Your tenants are easier to run away especially for those renting out their apartment or condominium units. I’ve seen tenants moving out in the middle of the night (just spent 2 or 3 hours) without their landlords knowing it.
- Although demand is high, the supply for residential units is also very high especially when most of the units are controlled by property investors.
I’m not sure if this gives you a clearer picture of which type of property investment you should go into. I sure hope it does. Anyway, there could be more pros and cons to each of them. But in general, all I can say is that investing in residential units is for the beginners and perhaps those more reserved type of investors. If you have the financial backing and are okay with high risk, then go for business premises. High risk, high yield. Just be aware that if the location you’re investing in failed up pick up momentum, then your investment is as good as gone.
As for me, I’m not that big a risk taker. I prefer to have a slow and steady growth, with minimum speculation. That’s why I personally feel that investing in residential units is more suitable for me.
Hope it helps.
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