Residential or Commercial Property?

If you are interested in an investment in Canadian real estate, you should be aware of the opportunities offered by both commercial and residential properties. Numerous investors are interested in commercial real estate because a less active role is required. Some investors prefer residential properties because they enjoy having a more active role.

BENEFITS OF INVESTING IN COMMERCIAL REAL ESTATE

1. Higher Returns: Commercial properties in GTA offer a higher return than residential properties. The cash flow is often more appealing than the funds generated from a residential property in the same area. According to the most recent statistics, commercial property in both Toronto and Ontario generates a higher annual return than a residential property. Larger commercial buildings and properties have more space than residential buildings. The additional space allows for more tenants or employees. This means the price of commercial properties is higher, but so are the potential profits. Making an Investment in real estate is often synonymous with portfolio diversification. Commercial properties in the Greater Toronto area are a good investment option.
2. Qualified Tenants: One of the most difficult aspects for any investor renting out a home for a single-family is finding qualified tenants willing to maintain the property correctly. This is not usually an issue for commercial real estate because commercial tenants are almost always corporations or businesses with the backing of a much larger company. For this reason, both the rules and property are generally respected. Although there are always exceptions, qualified tenants make the life of the property owner a lot easier.
3. Longer Lease Terms: The lease for a commercial property is usually for a much longer period of time as opposed to the typical six to twelve months for residential properties. There are numerous commercial properties located in the Greater Toronto Area leased for a period between five and ten years. This means an investment in real estate offers less vacancies, and fewer costs for turnovers. A long lease in Ontario offers the investor a positive cash flow to eliminate the need to market the property on a yearly basis. Investing in a commercial property in Toronto rarely results in undesirable tenants for any length of time. Any issues regarding the long-term can usually be eliminated by establishing legal protection in addition to a good application process.
4. Triple Net Leases: Despite the difference in triple net leases in the GTA, the benefits of a commercial investment in real estate are invaluable. A triple net lease is a great option because the owner is not required to pay any of the property expenses. All the expenses for the property are handled directly by the tenant such as real estate taxes in Ontario. The only expense the investor is required to pay is the property mortgage. This type of lease has become extremely popular for larger corporations. Many corporations prefer a triple net lease because they can maintain the feel and appearance of the property in accordance with their branding. Managing the costs of this type of lease in the GTA requires extremely little for maintenance costs. There are different types of net leases suitable for a commercial investment in real estate. These advantages are only available for commercial properties.
5. Increasing Value: One of the most important differences between commercial and residential properties is the determination of the property value. Residential investments are made to obtain income dependent on the specific property. Commercial properties can earn an income high enough to increase the value of the property. The more money the property generates, the higher the value.

BENEFITS OF INVESTING IN RESIDENTIAL REAL ESTATE

1. The Cost: Although there is a possibility a new investor can qualify for a real estate loan for commercial real estate in the GTA, the cost of an investment in a residential property is far less. A lot of new investors do not yet have the funds necessary for the significant down payment usually required for purchasing a commercial property. There is a good chance the investor does have the fund to purchase a single-family home. Some investors become overwhelmed at the concept of purchasing a commercial property in the Greater Toronto Area. Many investors have become established by purchasing several pieces of residential real estate capable of generating a good cash flow. This will eventually provide the investor with the funds required to invest in a commercial property.
2. Reducing Tenant Turnover: When an investor purchases a residential property in Toronto, turnover is not generally an issue for single-family homes. Commercial businesses constantly evolve and grow. This type of volatility can make it difficult to have the same tenants for a long time. As the business grows, there is always the possibility of outgrowing the property. This means the investor may need to find new tenants on a fairly regular basis. Investors in residential property can screen tenants to find renters interested in a long-term residency. When the tenants live in a home for a longer period of time, the chance the home will be taken care of as if it were there own is excellent. This substantially decreases the risk the property will be abused or damaged in any way.
3. The Zoning Laws: As the owner of a commercial property, there is a lot more red tape to deal with as opposed to residential properties in Ontario. The zoning laws for a commercial property are much stricter, with building permits more difficult to obtain. The regulations and rules for residential properties are more lenient because the scale is so much smaller.
4. Performance During Economic Difficulties: When the economy is slow, businesses in Ontario and Toronto experience the costs first. This can impact an investment in real estate in several ways. Attracting tenants to commercial properties during economic difficulties can be challenging. Residential real estate is different because there will always be tenants needing housing regardless of the economy. Although businesses can go under during these times, residential housing will always be necessary. This means investors should always be able to find qualified long-term tenants for residential real estate in the Greater Toronto Area.
5. The Pool of Renters: Investors should always consider the fact every individual requires somewhere to live. This means in comparison to commercial properties; the number of potential purchasers and tenants is much higher. Numerous Canadian businesses are now offering opportunities for employees to work from remote locations. These individuals will need to find new housing. The demand for housing should also be considered regarding the monetary aspect. The demand for residential real estate and housing is high, meaning investors have an excellent opportunity regardless of the current market or economy.
6. One of the Most Popular Countries Canada has become one of the most popular countries for investments in both commercial and residential real estate. Institutional investors have learned Canadian properties offer numerous advantages in comparison to the other international markets currently available including:
7. Familiarity and Safety: Numerous Canadian cities have become extremely well-known throughout the world. The country has an excellent reputation regarding investor projections, the consistent performance of real estate, and the strict property laws. International investors are comforted by the fact English is spoken throughout most of the country. When the familiarity and safety of Canada are considered, making an investment in either commercial or residential property makes a lot of sense due to the overall appeal of the market. No matter how high the potential returns of any investment, if the property is not secure, appealing, and in a good location, the investment capital is placed at risk. Experienced investors have learned safety is a crucial component regarding leasing, purchasing, financing, or reselling any real estate. Canadian real estate offers a large variety of attractive options ideal for investing. Commercial properties provide a much more profitable and simpler investment than any of the boutique markets so common in many of the other countries.
8. Financial Strength: In addition to financial strength, Canada has a well-earned reputation for having one of the most stable and strongest financial and banking establishments in the world. This offers investors from across the globe confidence due to the consistent performance of the market. Despite the constant influx of real estate markets around the world, investors are offered more security when the finances of the country are managed properly.
9. Opportunities for Growth: Canadian real estate offers investors excellent prospects for growth, Due to the low density of the population, employment rates are extremely strong. The country offers a truly diverse economy including new technology, exports and high-energy. Both corporations and global brands are drawn to the country due to the advances of so many of the major cities including Toronto and Ontario as a whole.
10. Investment Growth: Both short and long-term investments are consistently growing in Canada. The expectations are this trend will continue for a minimum of another decade. Other markets have failed to match the demand for the property, quality, and inventory available in Canada. As opposed to the rest of the country, the local cap rates in and around are GTA are attractive. As this trend continues to grow, the result will be even more opportunities for investors to achieve a consistent income. Investors from all over the world are reaping the rewards of an investment in Canadian real estate. As time continues to pass, investments in Canadian real estate are expected to be enhanced due to the uncertainty of the stock markets, the Brexit, issues in US and political unrest among giants like US and China. The country is offering incredibly attractive opportunities for investments in real estate as the development of national trends continues. It has become difficult to find another country offering the same perks for more experienced and sophisticated investors.

Sarnail Singh, CCIM, MBA Disclaimer: The information contained herein is intended for information purposes only. Although the information is believed to be correct, it’s accuracy, correctness or completeness cannot be guaranteed, and the writer make no representations or warrant the accuracy of the information provided. The prospective should not construe this information as legal. Legal counsel or other advisors should be consulted if desired on matters related to this blog and/or information. For more information please contact sarnail singh at info@sarnail.com.