The age old debate has gone on for as long as investments have been around and that is which one is better? Investing in residential or commercial real estate.

It is an investor’s job to look at both sides and decide which one fits in better with their portfolios and their goals.

The case for investing in commercial properties

On average you see anywhere between 8% – 12% gross rental yield on commercial properties according to CoreLogic RP Data, whereas the return for residential in capital cities are close to 3.6% in Australia. Commercial properties also see a longer lease somewhere between 3 – 10 years whereas residential can see a turnover every six to twelve months.

Commercial tenants also take on the responsibility of paying outgoings for you whereas in residential landlords are responsible.  Commercial properties also generally require smaller deposits.

At the same time there are many risks that exists as well, during economic downturn demand for properties fall dramatically. It also takes longer to find tenants once a vacancy occurs meaning you will have to take on all the expenses in the mean time.

If a commercial property is vacant or the lease on it is ending the property value will fall whereas with residential price falls are progressive and happen over a longer period of time. So it really depends on what your portfolio demands when making the decision to invest.