can be higher in single-family homes, it’s an eggs-in-one- basket situation, and vacancies can be especially detrimental. If a renter vacates, the place must be cleaned up and fixed, as necessary, then the owner needs to find new renters. This process can sometimes take two or three months, which might be equal to the amount of profit the owner could’ve made in two years, had the property been continually rented. • Commercial properties often come with higher expectations. Owners need to be extremely knowledgeable about what’s required for these types of properties and how to handle things if, for example, a large multi-unit apartment building becomes infested with bed bugs (which, by the way, is a class-action suit waiting to happen). • 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.
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