August 17, 2013 Neil warshafsky

Your burning question debated

Canadian Real Estate Wealth pitted two industry experts against each other to answer a burning question about real estate investing

The QUESTION

Residential or commercial:

Which is the better type of property investment?

The answers

Neil Uttamsingh

uttamsingh

An Oakville, Ont.-based investor and founder of FirstRentalProperty.com. He also works as a real estate agent, and was previously involved in the financial services industry.

There was a time, early in my real estate investing career, in which I thought that commercial real estate was a better investment than residential. I was young and naïve at the time and have come to realize that residential real estate is the far Superior investment.

Residential real estate is better because the possibility of owning a rental property is not out of the reach of the average income earner. All things being equal, you do not have to be making a six-figure income if you want to acquire a rental property in the residential world. If you are an average income earner, with the help of a quality investment focused mortgage broker, you can purchase a rental property with relative ease. Once you purchase this rental property, you can rent it out and have your tenant pay down your mortgage over the next 25 to 35 years, depending upon the length of the amortization period.

What this means to the average person is that once you have reached the age of retirement, you will have an asset that is free and clear of a mortgage. This strategy of investing in residential real estate is realistic and it is attainable. If you decide to purchase multiple rental properties, it is the best way to amass over a million dollars in equity over the course of your lifetime.

Neil Warshafsky

uttamsingh

Is a broker with Royal LePage Real Commercial Advice in Toronto, Ont. Specializing in commercial property investments, Warshafsky has helped many buyers find the best commercial properties for their needs.

Commercial real estate investment is a different form of investment than residential. The two are as different as investing, in say, bonds or equities. Commercial investment differs in the following main points: may offer superior yields as the growth in value results from market gains, property changes of use (higher and best use concept), increase in rents, better calibre of tenants, renovations, and a myriad of other factors. There are many more ways in which the value of a commercial real estate investment can be increased. Commercial real estate investment requires the investor to possess a different level of expertise, a certain degree of risk tolerance, an understanding of differing laws, which affect their asset. The possibility of more capital outlay (may be accumulated by investors grouping together in many legal structures) should also be considered. The investor should also have a network of professionals, such as environmental consultants, appraisers, engineers, architects, lawyers and other commercial real estate specialists. Commercial management is more formal, which less hands on work to be done as the tenants treat their premises as a professional space and not their home.

Typically, tenants who occupy commercial property pay all the associated costs involved in operating the property. Accordingly, the owner can insulate their investment from the exposure of incrementally increasing utility expenses, realty taxes and other associated costs, which are typically not recoverable under residential leases. It is possible to amortize the costs of certain capital replacements, such as air conditioning and other similar upgrades depending on the circumstance. Commercial real estate typically affords the investor a unique combination of cash flow and a payout on the sale; therefore it can generate a fairly good yield and internal rate of return.