Commercial or Luxury Residential Real Estate Investments?

The more money you make the harder it can be to know what to spend it on. After all, there are only so many material possessions you can own.

That’s why many of the ultra-rich invest in real estate. Traditionally, luxury residential real estate is a good choice. It can be seen as a status symbol and still attracts impressive returns, provided you choose to rent it.

However, if you’re ready to invest, it may be worth looking at commercial real estate options. We are going to look at why it is the better choice.

Understanding the Difference

Residential real estate is any property that you intend to rent out. Adding the luxury means that you’re looking for top-end properties and the associated renters. It can be a challenging market as people able to afford the rent on these types of properties can also afford to buy property.

In contrast, commercial real estate encompasses any building designed to be used as part of a business. That means warehouses, factories, office space, retail stores and even malls, movie theatres, car parks, and even multiple residential blocks.

Choice of Locations

Luxury real estate can be found across the country. However, it is generally in niche areas. That’s where the richest people live and where they can get as much privacy as possible. You can see this illustrated in the 10 most luxurious homes in the world.

In this sense the luxury real estate market is limited, where you can purchase is defined by which areas are deemed to be luxury.

The commercial real estate market is much bigger and easier to find a property. Commercial real estate is everywhere. You can choose to purchase something in your hometown or look at what’s on offer in Canada with FindBusinesses4Sale.

Such a wide scope of options means you can assess which property is going to be easier to rent and provide the best returns. While working this out check the local regulations. One of the reasons property in Canada is appealing is that the regulations are much more relaxed than in the US.

Less Economic Uncertainty

The world has been through a lot of economic uncertainty in recent years. Of particular note is the global pandemic and the Russian invasion of Ukraine. These events have pushed inflation upward and made people wary of excessive expenditure.

In short, even the wealthy are being more cautious with their money. That means it can be harder to find tenants for your luxury real estate investment.

Simply purchasing a luxury property and hoping its value will increase isn’t a great investment proposition. The returns from commercial real estate are far greater. In addition, purchasing luxury real estate means competing with cash buyers.

Despite economic issues, hundreds of thousands of new businesses are created every year. Many of these businesses need premises.  Owning the right commercial property will allow you to capitalize on their need for premises. It’s likely to be easier to find reputable commercial tenants than it is to find a tenant for your luxury property.

Less Work!

Those without investment properties often perceive this as a passive income. The truth is, that it takes time and effort to find the right tenant, keep them happy, and maintain the property.

However, commercial leases tend to place the onus for repairs and maintenance on the tenant. That’s one thing you don’t have to worry about. In addition, commercial leases are generally a minimum of five years. Residential leases can be as little as six months.

In short, it’s a lot easier and simpler to keep a commercial tenant happy than it is a residential one, especially a luxury real estate tenant who expects the best of the best at all times.

Higher Returns

Commercial real estate generally gives you a higher rate of return. In a simple example, the most expensive neighborhoods in Los Angeles will cost you over $4,000 a month in rent. The average studio rents for just $1,901.

Even if a luxury property were offering double this and giving you $8,000 a month in rent, a commercial real estate investment of more than four studios would return the same. An apartment block with eight full-size apartments could return somewhere between $20k and $30k.

With less maintenance and better returns, a commercial property investment is looking increasingly attractive.

Summing Up

Choosing the right investment for you and your lifestyle is important. You’ll want to see reasonable returns, preferably with tenants capable of weathering any storm. This is perhaps one of the biggest advantages of commercial real estate. You will have multiple tenants, dramatically decreasing the likelihood of you receiving no rent.

In comparison, your luxury real estate tenant can default and leave you without rent for months while you sort it out legally.

The bottom line is simple, you need to consider commercial real estate investment, it could be very lucrative.