29 Nov Commercial Investment is Open to Mum and Dad Investors
The main benefit of commercial property investment is that it promises higher returns, often without the same degree of micro-management required by residential investment.
What are the pros of commercial property investment?
- Higher yields / greater cash flow – commercial properties tend to offer rental yields between 5% and 12%, much higher than the 3-4% typically offered by their residential counterparts. This means that many commercial investments are cash-flow positive.
- Longer leases – while residential tenants rarely sign leases longer than one year, the minimum lease required in commercial property is typically three years-long, with many stretching to as long as 15.
- Annual rent increases – the lion’s share of commercial agreements have fixed rental increases built into the lease. What’s more, annual increases between 3-4% are fairly common, which is a fair bit higher than the current level of inflation (1.8% in 2018).
- Tenant pays outgoings – most commercial tenants sign what are known as ‘net leases’, which require them to pay for most, if not all, of a property’s outgoings. This includes council rates, insurance and land tax, as well as maintenance and repairs.
- Tenants are more inclined to look after the property – the responsibility of running a business provides tenants with a greater incentive to keep on top of maintenance and repairs.
- Diversification – investing in a commercial property confers the benefits of diversification on investors who otherwise would have only invested in residential properties. Owning both commercial and residential properties minimises an investor’s exposure to downturns in either market.
- Tax-effective ownership structures – you can buy a commercial property through a number of different entities, such as a company, individuals in partnership, trustees of discretionary trusts, or your own self-managed super fund. Each offer different benefits, and so you should ask your solicitor or accountant which best suits your needs.
- Broad scope for depreciation – commercial investors can also claim thousands of dollars in tax breaks through depreciation.
- Wide range of price points – while petrol stations, large offices and shopping malls sell for tens of millions, a surprisingly large number of city carparks and other commercial sites can be snapped up for five-figure sums.
This means commercial property is open to many mum and dad investors.
Article courtesy of Euan Black. To read more of this article visit realcommercial.com.a