Monday

SHOULD YOU INVEST IN COMMERCIAL OR RESIDENTIAL PROPERTY?



Are you planning to buy property in Malaysia but cannot decide if commercial property or residential property is a good investment plan? Real estate agents get asked whether a commercial or a residential property is a good investment plan. A commercial property typically refers to retail buildings, office buildings, warehouses, industrial buildings, apartment buildings and mixed building where it can be a mixture of retail, office or apartment. A house, condominium unit or an apartment unit that is meant to rent out to private tenants are considered as residential property. There are many articles on the Internet that give you a guide to buying commercial property and residential property as well. This article will list down the advantages and disadvantages of investing in a commercial property in Malaysia.


1. RISKS AND YIELDS

  • Commercial property
You will need to fork out a big initial capital as compared to residential property for 2 reasons: commercial properties are more expensive and lower loan financing from the bank. With bigger initial investment spent on a residential property, you can only the gain in revenue will outweigh the gain in cost. 

The best reason to invest in commercial property over residential property is the higher income potential. Commercial property will normally have an annual return on investments between 6% and 12%. In addition, the price of commercial properties can increase by double in a short time (3 to 6 years). This however, is large depending on the area of the property.

  • Residential property
As for residential property, it is generally a low risk investment. They cost much cheaper than commercial property and getting a bank loan is comparatively easier as compared to getting a bank loan for commercial property. Hence, it is considered affordable. The price of residential property would normally take between 7 years to 10 years, which has a longer period as compared to commercial property. 

2. RENTAL PROPERTIES

Commercial tenancy will have a longer lease between 2 years and 10 years, whereas residential tenancy will turn over every 6 months to 12 months maximum, which is considered short as compared to a commercial tenancy. This is due to business commitment that the tenants have committed to as they spent a huge sum in renovating the shops for business purposes, hence, a longer lease. Furthermore, the increase of rental yields per year is more significant for commercial property as compared to residential property.

It is also common to have tenants that are from large companies or corporations whereas the tenants for residential properties are typically individuals. With such big companies or large corporations, you can worry less on late rental payment as they are more reliable and tend to avoid the breaching of tenancy agreement. 

However, this is very unpredictable as there is a possibility of lesser rental yields that result in longer vacancy phase. Although commercial properties will have a longer lease of 2 years to 10 years, once the lease ends, it will take a longer time to find a tenant. That being said, you will then need to cover all cost on your own. 

3. EXIT STRATEGY

Whether you are buying a commercial property or a residential property, if your purpose of buying it is for investment purpose, then the only aim is to rent your property out and earn from the rental. However, you could also plan for future resale or property flipping as a lucrative strategy as well. Residential property are generally much easier to resell as long as you manage to find someone who wants to buy the property and as long as it is located in a nice area with good house condition. As for commercial property, it is much harder and complicated to resale as it is much more expensive as compared to residential property. In order to resell your commercial property, it is advisable to look for a group of investors. That being said, your commercial property will then have to have a profitable record to attract their interest. 

In conclusion, commercial property in Malaysia can be a good investment option as well as commercial properties can offer a more rewarding income but with more risks. Whether or not to invest in commercial properties in Malaysia is depending on your property investment portfolio and how much risk you are willing to take. Make sure you weigh the pros and cons to make the best real estate investment decision that is suitable for you. Make sure you look out for factors such as the property type, location and your economic conditions before you decide to make such investment. You certainly do not want to end up regretting in the future because of the wrong choice that you have made. After all, buying property involves a huge sum of money. Plan carefully to avoid getting into financial problems. 


No comments:

Post a Comment

Terima Kasih sudi jadi kawan Bella anda amat Bella hargai.

Kelab blogger Ben ashaari

Kelab blogger Ben ashaari