Introduction
While buying property, we mostly come across two broad categories that differ in their function and purpose. These categories are called residential and commercial properties, respectively. Knowing the purpose and type of property is essential before making an investment decision. In this article, we list some important differences between the two for you.
Table of Contents
- Understanding Commercial and Residential Property Regulations
- Differences Between Commercial and Residential Real Estate
- Residential or Commercial Property Inspections
As real estate investors, it is important to understand the differences between commercial and residential properties. While both types of real estate are profitable investment opportunities, they come with their own unique challenges and benefits.
Understanding Commercial and Residential Property Regulations
The property depends on its purpose and potential use. It can be broadly divided into residential and commercial. The basic definitions of both are as follows:
- Residential Property
These properties are meant for people to live in and for their personal use. Occupied primarily by individuals or families, this category also includes single-family homes, apartments, houses, and townhouses.
- Commercial Property
The basic features of commercial property revolve around business reasons. The zoning regulations, financing options, and leasing terms of such properties differ greatly from those of residential properties. Such assets may include office buildings, retail stores, hotels, and more.
Differences Between Commercial and Residential Real Estate
Residential and commercial properties differ in their key features, thus helping us distinguish between the two. To understand the terms better, let’s look at some areas where they differ from each other:
| Feature | Residential properties | Commercial properties |
| Use of the Property | They are primarily designed for people to live in or as accommodations for individuals or families. They include single-family homes, apartments, condominiums, and more. | Primary use includes office work, retail sales, manufacturing, and warehousing work or providing services. There are office buildings, shopping malls, industrial warehouses, hotels, and restaurants. |
| Zoning Regulations | Such properties are often located in the neighborhood or area zones for residential use. Hence, the features focus more on providing convenient accommodation. | Located in purely commercial or mixed-use areas. They are designed to facilitate various business activities. |
| Financial consideration | Such properties are easily financed with the help of residential mortgages or home loans. Their evaluation is carried out by considering the comparable sales analysis. | Financing options available here include commercial mortgages, loans, and investment partnerships. Valuation is done using income capitalization methods based on rental income and expenses incurred during operation. |
Residential or Commercial Property Inspections
Once you are sure of your investment objective, you need to decide whether the property you are considering is suitable for it. Now let’s look at a brief checklist you can refer to to verify whether a property is residential or commercial:
- Definite Use
Assess the primary purpose assigned to the asset.If the purpose is to offer lodging, it may be classified as residential property. Conversely, if the area is intended to facilitate business endeavors such as retail or industrial operations, it is classified as commercial property.
- Zoning Designations
Zoning laws regulate how land can be use. Residential zoning has strict rules for commercial activities. It allows mostly household benefits only. Similarly, commercial zoning is designed to enhance business-related uses.
- Architectural Features and Layout
Pay careful attention to the design, features, and layout of the building. A residential property is suitable for residential living such as bedrooms, bathrooms, kitchens, and living areas. On the other hand, commercial properties have large open spaces or retail storefronts. These are more suitable for businesses.
- Financial considerations
It is essential to review available financing options and valuation methods. For residential properties, residential mortgages and suitable tenancy agreements can be obtained. Commercial properties are generally financed through commercial mortgages and leases based on commercial terms. Among the valuation methods, the income capitalization method is undisputed.
Conclusion
Commercial and residential real estate are two different types of properties. So, they have their own unique advantages and challenges. As an investor, it is essential to carefully consider your goals and risk tolerance before deciding which type of property is right for you. For more information, visit Openplot.
Also read: Bangalore Records Residential Registration of Rs 144,36 Cr in 2023