Should you invest in residential or commercial property?

Investing in property presents a promising opportunity to build long-term wealth. What are the benefits of choosing residential over commercial property, and is it possible to invest in real estate without taking on the role of a landlord?

Kiwis have a strong affinity for property investment, which has historically proven to be a reliable method of accumulating wealth over the years.

Property has one major advantage when compared to investing in other asset classes: it’s much easier to borrow to buy property than it is to buy shares. This can maximise your potential gains – or losses – of owning property.

While property values generally appreciate over time, it's important to note that in the short term, they can experience substantial declines. As a result, successful property investment demands a long-term perspective, and any purchases should align with your overarching, enduring objectives.

Commercial or residential property?

There are important differences between investing in residential rentals (renting a house to tenants) and commercial properties (leasing a retail, office or industrial building to a business).

The advantages of residential property include:

• Wide range of property types to choose from, many at affordable prices.
• Ease of finding tenants.
• Relative ease of securing a mortgage.

The main downsides? Residential tenancies are typically much more time-consuming than commercial ones, and tenants can be higher maintenance.

The advantages of commercial property include:

• Not needing to adhere to the Residential Tenancies Act or Healthy Homes legislation.
• Higher rents and yields, returns are usually much higher.
• Long-term tenancies.

On the downside, quality commercial property tends to be very expensive, and finding tenants can be a challenge.

Being a good landlord

Whatever type of property you choose, you’ll need to find good tenants, keep them happy, and maintain your property to a high standard. There are significant ongoing costs to property ownership, and if you can’t afford to do regular maintenance and repairs on a property, this probably isn’t the right investment for you.

Other ways to invest in property

If you don’t want to be a landlord, or it doesn’t suit your budget, there are other ways to invest in property. From just a few dollars, you can buy shares in listed companies that own or build properties, either residential, commercial or retirement. This is a totally hands-off way to invest, which you can access using an online trading platform.

Talk to us about the tax implications

Whenever you invest in property, there are important tax considerations – including the bright line test, variations for new builds, and whether you need to pay GST when you purchase a property.

We can help you navigate your tax obligations, fine-tune your strategy, and work out the optimal structure for owning a property. We can also get your accounts sorted out if you’re applying for a loan. Just click the button below and send us an email, we'd love to hear from you.