Rent and Capital Gain

Good evening!

Today, I am going to compare the difference between residential properties and commercial properties in terms of rental income and capital gain.

Residential Properties

Residential properties can be segregated into two types; high-rise and landed. High-rise residential properties like condominiums and apartments tend to yield a higher rental income when compared to landed residential properties like bungalows and terrace houses. However, the capital gain on landed residential properties is way higher than the capital gain of high-rise residential properties.

For example, a condo yielded a rental income of $2000/month in 2009 and was worth about $300000. At the same time, a bungalow yielded a rental income of $1600/month but was worth $420000. Today, the same condo yields a rental income of $3000/month but its value is only $370000.At the same time, the same bungalow yields a rental income of $1700 but it's worth $700000.

For the above example, the capital gain for the condo is $70000. The capital gain for the bungalow is $280000.

Capital gain of bungalow > Capital gain of condo

However, the rental income of the condo had increased significantly and remained superior when compared to the rental income of the bungalow which has nearly remained stagnant.

Rental income of bungalow < Rental income of condo

Commercial Properties

Commercial properties tend to be superior when compared to residential properties on rental income and capital gain. Both will increase at about the same rate.

Capital gain and rental income of commercial property A = Capital gain and rental income of commercial property B

*in the same area

Land

Land generally enjoys a high capital gain. The rental income of land depends on what the land is used for; parking lots, plantations and etc. There is really nothing much to say about land, it is more of a buy and hold type of property.

Summary

• Commercial properties tend to have the upper hand when it comes to rental income and capital gain. 
• Residential properties have a significant difference between the increase in rental income and its capital gain
• Land is generally bought and held on to for many years. Rental income of the land is determined by the usage of the land. Land generally enjoys a high capital gain.

I hope this article has given you a better understanding of the characteristics of capital gain and rental income between these three types of properties. Thanks for taking your time to read this article, it really means a lot to me!