Investing in commercial property is highly attractive with the major selling point being its security. Even when the economy slows down, a commercial property still generates some value for you, which is not the case with residential property. On the other hand, when the economy is in an upswing, there is immense growth in the value of a commercial property, and you also get a steady income.
The idea of investing in commercial property might seem complicated and expensive to people who have never given it a thought. However, investment in the retail property market can provide lucrative returns when done right. Commercial property can be any kind of real estate, such as warehouses, doctor’s offices, car parks, retail stores, or any other type of business.
If you’re still not convinced, here are five more reasons why you should get started with an investment in commercial property:
#1 Better Returns
One of the biggest attractions of investment in commercial property is higher rental income. Also, all the associated costs of maintaining the property are generally covered by the tenant in addition to rent. The tenant also pays for insurance, body corporate as well as other ownership costs associated with commercial property. However, land taxes are the responsibility of the owner. The tenant might also be responsible for charges related to the preparation of the commercial lease. All of these, when put together, generates a much higher yield for the landlord.
Commercial property fetches higher overall yields in comparison to residential property. As per the CoreLogic RP Data, 4.1% is the average gross rental yield in the capital cities of Australia for residential properties. On the other hand, this number varies anywhere from 6% to 10% for commercial properties.
#2 Property Maintenance
Business advisor, Shane Perry from Maxfunding, says, “Another significant advantage of investing in commercial property is that the maintenance of the property is usually the responsibility of the tenants as it impacts their business image, customers as well as staff. Maintaining the store and storefront is necessary for the tenant as an unkempt storefront will lead to loss of business. She adds, “proper maintenance of a commercial property is in the interests of both the tenant and the owner. Owners get to maintain and improve their features, which ultimately helps them enhance the value of their investment.”
On the other hand, residential property needs to be at its best to attract renters. The cost of maintenance and improvements in residential property is also the responsibility of the landlord.
#3 Long-Term Lease
Length of the lease is one of the significant differences between commercial and residential properties. Commercial properties typically have more extended lease agreements which result in a steady income stream. Commercial leases are usually signed for many years, and the extension often happens in 3 or 5-year increments. On the other hand, residential properties are typically approved for only a year.
A commercial property investor gets more reliable income and has to deal with less hassle as compared to residential leases where they might have to deal with a different set of people every year.
One of the other main attractions of commercial property investment is the diversification of your portfolio. Residential property also offers you ample opportunities to diversify such as CBD, Metro, houses and units, capital growth, regional as well as cash flow. Still, all these are part of the consumer market. When you invest in commercial property, you get to diversify into different industries and markets, including retail and manufacturing, among others.
#5 Benefits in Superannuation
In many cases, investors use their self-managed superannuation funds to buy a property. However, SMSF rules prohibit investors from living in a residential property acquired through their SMSF. Regulations for commercial property are different. If you have bought a property through your SMSF, you can’t live in it, but when you purchase a commercial property through your SMSF, you can work out of it. It is attractive to investors running their businesses.