• When it comes to gross rental yields, residential properties tend to get 3-5% with the net profit being around 2-3% per year. Escalations (rent increases) tend to be between 5 and 7% each year. Commercial realty’s gross rental yields are significantly higher at 6-10% per year with escalations between 3 and 5%. If you take a long- term look, residential properties yield about 8 or 9% per year over the course of 10 years, whereas commercial properties yield around 13-15% per year during the same timeframe. • While any income received from either type of property will be taxed, only residential properties with a loan may qualify for a tax break, depending on current tax law. • If your goal is to take on multiple rental properties, it’s easier to do so with commercial properties due to Real Estate Investment Trust (REIT) regulations. • Residential properties cost less to purchase, and you have a lower holding period for returns. However, they tend to bring in lower rent. Conversely, commercial properties get a higher yield and returns. Also, their property values are more stable. However, they may require hiring a property manager, having more (or more complicated) leasing strategies, and require a more detail-oriented approach. • Residential properties need to be move-in and live-in ready and their size isn’t too critical. In contrast, commercial properties can be a warm or bare shell and they might need to be a certain size to make the property 64
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