For many less experienced investors, the only property investments they know about are residential properties. This is unfortunate as a well-researched commercial property investment can be both lucrative and require little attention once a tenant has been arranged for. The Benefits of Commercial Properties. Excellent ROI According to CoreLogic RP Data, the average rental return for residential properties across Australia’s capital cities is 3.6%. In contrast, it is not uncommon for commercial properties to earn in excess of 8% pa and in some cases, in excess of 10% pa. Fewer Outgoings Typically, a residential property investor is required to pay many expenses. Amongst others, they are required to pay for council rates, water rates, repairs and maintenance. In contrast, commercial property investors are not burdened with these costs. In commercial properties it is usually the tenant that bears these costs. Longer Leases Whilst residential leases usually range from six to twelve months, commercial properties have the added benefit that commercial tenancies can range anywhere between three and ten years. Where the tenant has also invested capital customising the premises, it is likely that these tenants may stay even longer. The Risks of Commercial Properties. Below are some general factors with investments in commercial properties, that without professional advice, can lead to serious risks: Sensitivity to Economic Conditions The performance of commercial properties, as an investment, is especially dependent on the health and performance of the economy. Generally, in times of economic prosperity, businesses flourish and demand for commercial properties rises. On the other hand, during an economic downturn, demand for commercial premises also declines. Greater Down Time Whilst it is true that commercial properties tend to attract long-term leases, it is also true that it takes a longer amount of time to locate a tenant. During periods of long vacancies, all costs arising from the property will need to be borne by the investor. Infrastructure Changes Can Be Detrimental Major infrastructure changes can affect commercial property returns both positively and negatively. These changes could attract tenants from other areas but it can also lure tenants away. Should I Invest in Commercial Properties? As part of a balanced and diversified investment portfolio, commercial property can be an excellent strategy. However, like with any investment, there will be both benefits and risks involved. Prior to making any investment decision it is important to exercise due diligence and weigh the benefits against the risks. Property syndicates or pooled funding help to overcome these issues as it allows the investors to have access to industry experts whilst being involved in big projects.
Posted OnAug 09, 2016
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