Leasing land is often more complicated than investors and tenants believe. When you first go to release land to someone else, you have to calculate not only its value but what kind of income it might net you. Tenants must also weigh the value of the land against rent, all the while determining whether or not the property in question suits their needs.
With this in mind, the value debate between the commercial landlord vs. residential landlord wage on. Let’s break this argument down and see the pros and cons of each position and how they can impact investors and tenants alike.
What is a Commercial Landlord?
A commercial landlord is an individual who owns and leases property for use as a storefront. There are several different kinds of property that this individual can control, including:
- Office/ Shared Workspace
- Salon Booth Rentals
- Hotels and hospitality institutions
- Mixed use lots
- Special purpose
Determining which of these properties you’re most interested in is a matter of taste and ambition. That said, all of these properties beget residents interested in earning money for themselves.
The benefits of becoming a commercial landlord (or of working under one) are varied. Landlords, in particular, benefit from their clients’ near-constant income and the increasing value of the land around them.
Tenants can also enjoy fewer maintenance expenses as they establish their new business. These parties can instead turn to their landlords if they have problems bringing their outlets into working order.
When landlords lease commercial property to interested tenants, they take a risk on that individual’s business sense. A business that does poorly can reflect negatively on the property in question, making it more difficult for the landlord to profit.
Tenants will have a harder time customizing their shops, though. Commercial landlords can put limitations on how tenants interact with their rented property and what kind of businesses spring up in the area. Interested tenants must work with their landlords to determine whether or not they’ve found a spot where their business can thrive.
What is a Residential Landlord?
Residential landlords, unlike commercial landlords, do not allow businesses to operate out of their properties. Instead, these individuals specialize in cultivating living quarters for interested tenants, including multi-family and single-use homes.
When you work as a residential landlord, you can rest easy knowing that your monthly income will remain consistent. Tenants who pay their rent on time will pay the same amount from month to month, with only slight fluctuations depending on any utilities the landlord opts to offer.
Tenants, too, can enjoy the maintenance and amenities offered by a residential landlord.
Working as a residential landlord may be stable, but there’s not too much room for growth. While you can procure other properties, the consistency of your income and matching state taxes, caps of rent increases, and management fees can feel stifling for more experienced investors.
For tenants, the downside of working with a residential landlord is the inherent sacrifice they must make when it comes to individualizing their space. Tenants have less control over the space that they’re inhabiting. Unless it’s explicitly stated in their lease, tenants cannot change much about their rented unit, meaning that they’re stuck with the infrastructure that’s already in place.
Creating Your Investment Portfolio: Commercial Landlord vs. Residential Landlord
When it comes to crafting a successful investment portfolio, it can be difficult to determine which is better: a commercial landlord vs. residential landlord. In reality, the roles these positions and related properties play in your portfolio will vary based on your own intentions.
Commercial properties, for example, tend to attract tenants who want to make money on their own. If you choose to lease them this kind of property, you’ll benefit not only from their rent but from their income, as well, especially if their efforts increase your property’s value. Residential properties, in this same way, have their value tied to their tenants. Still, the impact of those tenants is less all-consuming.
Instead, residential properties fluctuate in value based on the area’s demographics while their rent remains stable. In the end, only your final sale of the property will be influenced by the local change. The income you accept from month to month will keep your own expenses under control.
With that in mind, consider sitting down with a professional to discuss how you want to grow your investment portfolio. If you’re looking to take a risk, commercial properties may suit you well. If you’re more interested in the flip-and-lease market, residential rentals may be the best for you.
Commercial Landlord vs. Residential Landlord: Plan Your Investing Ahead of Time
Landlords and tenants alike need to know the difference between commercial and residential properties. While there are benefits to both, commercial properties are best used for commercial endeavors and long-term, fluid investments. On the other hand, residential properties come in many forms and are perfect for anyone looking to make a space for themselves. What’s more, these spaces lend a sense of stability to the curious investor’s pocketbook.