When talking property investment we generally think of residential real estate, often giving little or no thought to commercial property as a viable investment solution.
Commercial real estate is primarily used for business purposes and consists of three sectors – retail, office and industrial.
Six major reasons to invest in commercial property:
– higher returns which range from between 6-9% PA nett, depending on length of the lease, location of property and strength of covenant
– majority of the time they will have longer leases than residential property – typically 3, 5 or 10 years with fixed or CPI annual increases
– tenant meets the cost of all outgoings, such as, council, water and strata rates, and more often than not also land tax, property management fees, general repairs and maintenance
– substantial less wear and tear and far less for tenants to damage. Most commercial properties are simple and include four walls, toilets, a kitchenette and air conditioning.
– accessible via your self-managed superannuation, making it a popular investment vehicle to those heading close to retirement
Sound fantastic? So why isn’t everyone investing in commercial property?
Although it all sounds fantastic, like all investing, commercial property investment is not without risks.
Some factors to consider when looking at commercial property as investment.
- the required deposit is between 30-50% of purchase price which is a lot higher than residential
- potential for longer vacancy periods
- capital growth is often lower, influenced significantly by economic factors such as unemployment and consumer confidence
There are also other taxation issues to be taken into consideration, such as GST, which needs to be discussed with your accountant.
So while the associated risks with commercial property can be higher than those with residential, the benefits can be significantly greater. The key is to have experienced and reputable experts who can guide you in the right direction.
Simon Russo of Coutts Real Estate is a licensed Real Estate Agent specialising in commercial, industrial and retail property.
A common question Mr Russo gets asked,
“Overall, is commercial property a better investment than residential property?”
The answer is neither, as it really depends on what the investor is aiming to achieve and where they are at in their life cycle. Some may be aiming for high-yielding property for cash flow, whilst others might be prepared to wait it out for larger capital gains with minimal cash flow, so they may leverage into other investments.
As a licensed real estate agent of over 10 years, Simon Russo has the skill set and qualifications to confidently assist in the selling, leasing or buying of a commercial asset.
You can reach Simon HERE or by calling 0414 678 632