Any property, whether it is commercial or residential, can be a great investment property. Both property types will give investors financial reward, but the total investment for both types of properties can vary. Depending on the location, type, and demand, the value of the property may significantly vary.

Before considering the type of property you are looking to purchase, it is important to understand how these types of properties are valued in the eyes of a realtor or listing agent. In Ontario, the cost of both residential and commercial properties depends on the area the property is in and the price of properties that have previously sold in the same area.

Residential Properties

Defined as single family homes, residential properties are usually purchased for the owner of the property to live in. Residential properties can also be purchased and used as rental properties as a way to gain additional income and invest in a property that is considered a less risky investment. If a residential property is going to be used as a rental property, it is easier to find tenants to fill a vacancy in the property.

Home prices are determined by using different comparable sales methods which look at the cost per square foot, the cost of construction, or the layout of the floor plan. Home prices are also determined by other sales that have happened in the same area, and agents use this as a base for how they are going to price a new listing. This form of valuation is also used for apartment buildings, condos, bungalows, etc.

Commercial Properties

Commercial properties are often purchased as a way to generate large portions of income at one time and are owned by investors. They can be mixed-use properties that contain business spaces and apartments, or they can be strip malls, industrial properties, or office buildings. An investor of commercial properties rents out the spaces for tenants who pay rent every month for the space and the value of the commercial space is calculated based on the income it makes.

The income of the property is determined by the income of the rented space deducted by the operating expenses. The net operating income is the remaining balance that should be determined if you are considering investing in commercial properties.

The value of a commercial property is determined once the property investor determines the net operating income. The return generated on their investment dollars is the rate of return, and is one of the tools used to compare different investment options. If the property were to be sold, the sale price is determined by how much the investor is willing to pay for the present value of the projected net operating income.

For more information on pricing a property, please contact Mehran Redjvani. Or for more information on Richmond Hill and the surrounding areas, please visit Mehran’s RE/MAX West Brokage page.