Commercial property

When to Consider Commercial Property

Australians love bricks and mortar – but there are times when commercial property can make more sense than residential accommodation. We look at five reasons why it might be time to consider commercial property.

1. Your price is out of the residential market

It’s no secret that home values ​​have skyrocketed over the past year. This saw median home values ​​in Sydney and Canberra top the $1 million mark, with Melbourne not far behind according to the latest data from CoreLogic.

If that kind of money is out of your reach as an investor, commercial property may be a more affordable prospect. A quick search shows that it is possible to find offices, retail and even small industrial warehouses for less than $300,000.

2. You are looking for high returns

One of the beauties of commercial real estate is that leases tend to last much longer than residential real estate – typically 3-5 years. This provides greater income certainty, with the benefit that returns tend to be higher.

As an indication, the latest Raine & Horne Commercial Knowledge The report shows that yields currently range between around 4-7% depending on property type and location. By comparison, CoreLogic reports gross (before cost) residential housing returns nationally at 3.1% for houses and 3.7% for apartments.

3. You own a small business

Investing in your own business premises offers security of tenure and a chance to control rental costs. And Angus Raine, executive chairman of Raine & Horne Property Group, says today’s historically low interest rates are fueling the rise of homeownership in commercial real estate markets.

He explains: “In many areas it is now cheaper for businesses to own rather than rent their premises.

“Not only is this underpinning the strong demand for commercial properties – particularly those being sold with a vacant property – but it is also putting pressure on rental markets as fewer properties are available to rent.”

4 You are looking for a source of regular income

You can choose to invest in commercial real estate indirectly through a listed real estate trust or an unlisted fund. Both have a history of paying regular income as well as a chance to access a cross section of commercial properties.

Many A-REITs and unlisted funds pay monthly or quarterly distributions backed by regular rental income. It can be a much more regular source of income than, say, stocks, which only pay dividends twice a year.

5. You don’t want the ongoing costs of home ownership

In a residential tenancy, the landlord bears many of the ongoing costs, including repairs and maintenance. Not only can managing these expenses be complicated, but it also reduces net returns (after costs).

On the other hand, in the commercial market, it is more common for the tenant to pay a large part of the regular expenses of the property. This means more of the rent goes directly to the landlord, with less of a drain on cash flow to keep the place in good shape.

Keep in mind that commercial real estate is considered a higher risk investment than residential housing. Leases can be longer, but vacancy periods can also be longer. It is therefore important to weigh the pros and cons to make the choice that is right for you.

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