Property investment, commercial property, residential propertyIf you are looking at investing in property but are not sure whether to choose a residential or commercial property investment, below are key points to help you decide. The list includes general and specific factors to consider – and they are not all about property!

  1. Where do you live and where do you want to invest?

It is important to research the property prices and outlook for the region in which you are considering investing. Do you want a property near to where you live? Would investing further afield offer greater returns?

It is equally important to consider whether you wish to be a ‘hands on’ investor or not. Would you prefer to invest in a property which you can closely manage and visit often? Alternatively, are you looking for an arms-length investment solely handled by an experienced property manager or property agent?

  1. Checklist of the pros and cons of property investment
  • Financial gain (rental yield, Capital Gains Tax exemption, Capital Allowance, VAT).
  • Return on investment (over what time frame)?
  • The value of your time.
  • Travel – time, money, convenience.
  • Costs and fees (one-offs and ongoing).
  • The level of control you want.
  • Lease terms.
  • Differences in legislation between residential and commercial landlords.
  • Managing periods of uncertainty including when the property is vacant.
  • Who is responsible for maintenance and repairs*
  • Your peace of mind.

*Depending on the terms of the AST (Assured Shorthold Tenancies) a residential landlord is often responsible for repairs whilst a commercial tenant, again depending on the terms of the lease may be responsible for repairs and maintenance.

  1. Differences between residential and commercial property investment

Characteristics of residential property

The investment potential of a residential property can be heavily influenced by characteristics of its location including economic growth, employment and wages, supply and demand and access to finance.

Residential property investment is often termed a buy-to-let investment.. The residential option may be more familiar if you already own your own home, and quite often investors pull equity out of their own home to find the deposit on a buy-to-let investment. However, finding a ‘project’ which will offer a huge return on investment after all renovation costs are taken into account is far less likely than it was 15 to 20 years ago.

On the surface investing in residential property may appear to be the more straight-forward option but beware of the time involved, potential changes in regulation and policy, and rising costs such as fees or taxes. The recent 3% increase in SDLT (stamp duty land tax) has had a negative impact on investors and the inability to deduct mortgage interest from annual taxable impact will no doubt also do so over time.

Preparing for these elements as far as is possible means less surprises, especially when factoring in (potential) periods when the property sits empty.

Characteristics of commercial property

The value of a commercial property can be affected more by economic growth and production which have a direct impact on rents, demand and construction.

Commercial property is less emotive, perhaps because the sector is professionally managed and can be acquired through professionally managed funds which may or may not require leverage. This results in a more transparent system which is easily managed – especially when at scale. In the case of commercial property investment, management costs are easier to spread across a property portfolio.

The downside of this option of course, is the purchase cost. The price of a small commercial property may be more comparable to that of a residential property putting this option within reach of the individual property investor. For those who wish to invest in larger-scale commercial property, financial options to consider include:

Also, the different types of investment options include direct and indirect investment funds.

The advice here is to gain professional advice as an accurate valuation is essential. Comparing one warehouse to another in your chosen area is not as straightforward as the valuation between two 1-bedroom flats.

  1. Time is money!

In summary, investing in any property is about maximising your return of both time and money.

Residential property can take up more management time and money than commercial property. This is due to maintenance, repairs and (potentially) periods of non-rental due to short lease times. When making your choice consider that costs can absorb the majority of rental income in residential property – making this a less attractive option for some.

If investing in commercial property is your choice, it is crucial you seek profession advice about valuations and to help you navigate the purchase, lease, tax and contracts to minimise the risk you are taking.


If you would like a free, no-obligation discussion about investing in property please contact Caroline, our property specialist.