Retiring early requires a few different income streams. This is why becoming a landlord is a very popular option. There are many ways to become a landlord from renting out a spare room to leasing a commercial space.
There are pros and cons to being either a commercial or residential landlord. Understanding the requirements and how things work is essential to your success as a landlord.
In this article, we will cover the differences between owning commercial and residential properties to make money for your retirement.
Benefits of commercial properties
Buying up a commercial property usually involves a higher upfront cost. These spaces are bigger and outfitted for businesses so they are naturally going to be far more expensive than buying an apartment for example.
However, the higher price brings some nice benefits as well. The most obvious is higher returns. The more you spend the more you make.
Since the space is bigger and it is optimized for a company to go in there and do business, the rent is much higher. Businesses will pay high rents for a desirable space if it is in the right location and offers many perks such as a parking lot, a high-end electrical system for running high energy demand appliances, and a long lease.
Along with higher rent payments, there is also the possibility of adding in a Triple Net Lease Agreement. There are many different types of NNN leases but the basic idea is that the tenant will also pay a portion of the utilities, property taxes, and insurance. This lowers the expenses of operating a big property and makes it even more attractive financially.
Tenants also tend to be more qualified since they are there to make money. There is far less of a chance of a commercial tenant that abuses the property or stops paying the rent. Life is generally easier for commercial landlords than residential.
Benefits of residential property
The primary reason to buy residential property over commercial is the cost of entry. It is far less expensive to buy an apartment or moderately sized house than it is to buy a commercial property. The average person getting ready to retire early doesn’t usually want to part with a few hundred thousand dollars to put a down payment on a commercial property.
Since it costs less to buy in, it is also easier to buy multiple properties and make more money that way. Rentals start paying money right away. This money can then be used to buy up another property which then brings in additional income.
Residential properties are also easier to fill. It is not uncommon to see commercial buildings empty for a number of years before a new company enters. Finding renters to live in a home is far easier.
Conclusion
The right situation comes down to two things for a property investor: budget and personality. Do you have the budget to buy a commercial property? Is it more rewarding to help out a family looking for a good landlord? How you answer those questions will reveal the right way forward.