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What is the difference between residential vs commercial property?

By June 12, 2023July 5th, 2023No Comments

Residential vs Commercial Property. There are several important differences between commercial and residential properties which you need to take into consideration before choosing which type of property to invest in. 

The main difference between commercial and residential property is, of course, in your target customers. For residential property, they are called tenants and pay a fixed monthly amount to live on the property. For commercial, the customers are business-owners and companies.

However, there are many other small or big differences that we need to consider when looking to invest in one or the other.

Let’s have a look at some of them.

What are residential and commercial properties?

Residential property

Residential property is defined as a building used or suitable, or developed to be used as a dwelling space. These include mobile homes, single family houses, flats, detached and semi-detached houses, etc.

Commercial property

This is property used solely for business purposes and often leased to tenants for that purpose. It is used for non-residential activities such as office spaces, retail shops, industrial buildings, etc.

What is the difference?

In order to choose residential vs commercial property, let’s have a look at the differences between the two.


Residential property is used by your tenants 24/7 which means it is more prone to wear and tear. However, the problems tend to be simpler and can be solved quicker by contacting a professional (plumber, electrician, etc.)

For commercial property, maintenance is more complicated because the properties are usually larger and have more facilities. Thus, they often require a lot more work.


When you are looking to invest in a residential property, an approximate 20% downpayment is required.

Whereas, for investing in commercial properties, the downpayment varies between 25 and 35%.

Combining generally higher prices with lower LTVs, there tends to be greater barriers to entry in the commercial property market, i.e., investors must invest more of their own capital. However, the greater leverage on residential property makes it more vulnerable to changes in interest rates.


Buy-to-let (BTL) mortgage interest rates are often lower than commercial mortgage interest rates.

When it comes to commercial property, you’ll need extra money for the mortgage deposit and other charges, as well as any necessary repairs.

Income Potential

Residential properties ​​commonly have a ROI of 4-10%, depending on the property type and its location.

On the other hand, commercial properties usually have a ROI of 6-12%. It has a higher income potential because of the type of customers which are usually business-owners or companies. As well as that, commercial properties tend to have more investment opportunities.

Residential rent prices are tied to tenant income, which tends to grow fairly slowly, whereas commercial rents are more tied to business income, which can grow at a greater rate.


As home prices rise, so will demand for rental units. Due to high demand, individuals respond swiftly when they are interested in a home and do not keep landlords waiting.

Many companies worked from home during the pandemic, and some closed altogether, diminishing demand for commercial property.


For residential properties, one year leases are the norm. However, if your tenants are happy, they will keep renting which means an uninterrupted income flow for you.

When it comes to commercial properties, there are usually longer leases ranging between 3 and 5 years. As well as that, the people using it are less likely to relocate due to the disruption it will cause their business.

Continuous leasing can avoid unwanted/unnecessary costs involved in refilling the property, like advertising, and generally lack of income.

Does investing in commercial property have drawbacks?

Everything about commercial properties so far may have sounded great (and it is), however, we should not forget about the cons.

Although commercial property can offer higher ROI, it requires more time, effort, and work on the landlord’s part. You need to be more involved with the property maintenance. Additional regulations and requirements, such as fire exits and automated vents, can also add significant costs.

Another factor to consider is that initial capital requirements are higher, making it more difficult to start investing. Business rates can also be costly if the property remains unoccupied for longer than expected.

What’s more, commercial property tends to require greater knowledge of the market on the landlord’s part, which can often be expensive to acquire.


So, residential vs commercial property? Bottomline is that both residential and commercial property have their own pros and cons as an investment decision, and one needs to consider them carefully before making a decision.

An interesting statistic shows that the capital value of the UK commercial real estate stock has nearly doubled since 2000, peaking in 2018 at just over £1tn. In comparison, UK residential real estate stock reached a record high of £8.4tn in 2021, close to three times the estimated value for 2001.

The UK commercial real estate market has seen significant growth since 2000, while residential real estate continues to increase in value. When deciding which option is best, it’s important to consider factors such as ROI, maintenance, demand, and leasing requirements.


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