15 Oct Guide to Investing in Commercial Property
Commercial property investment may look like the exclusive preserve of the rich and famous from afar, but edge a little closer and you’ll see that it’s well within many residential landlords’ grasp.
Building a strong commercial portfolio isn’t easy and often poses greater risks than for residential properties. But with a wide range of price points available, you can find a property to suit more buyers. Like all higher risk investments, the rewards can be great! You need to do your research to reduce your risk.
Here’s what you need to know about buying commercial property.
Most commercial properties can be categorised into one of three types: office, retail, or industrial.
How is commercial property investment different from residential property investment?
They are very different types of investments. From average lease length to level of risk, they need to be tackled differently.
A major difference revolves around the lease. Commercial leases are much longer and, unlike their residential counterparts, play an important role in determining the value of a property. This is because it’s much harder to replace a commercial tenant than a residential one.
The fact that demand for commercial properties is far more elastic than for residential properties, means that the vacancies between commercial tenants tend to be far longer than those between residential tenants. Coupled with the sector’s increased vulnerability to broader economic shocks, this is why commercial properties need to offer greater yields to attract investors; if the returns weren’t as high, investors would baulk at the risks.
And that’s the long and short of it when it comes to explaining commercial property investment to residential investors: the risks are greater, and the returns are higher.
Article courtesy of Euan Black. To read more of this article visit realcommercial.com.au