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Commercial Property: Why You Should Invest Today

Commercial Property: Why You Should Invest Today

Commercial property

Investing in commercial property can be a good way to diversify your portfolio and provide positive returns or utilize negative gearing as a broader tax strategy.

Commercial property generally incurs less ongoing costs for the owner/landlord, mainly because the tenant will cover maintenance, most appliances, council rates and body corporate fees, along with utilities and rent. This also means that managing several commercial properties will involve less active management on your behalf, saving you time as well as money. Of course, many landlords will prefer to outsource their property management to a real estate company who will manage this on your behalf.

If you purchase commercial real estate with the intent of leasing it out to tenants, this can be a profitable exercise. Unlike residential leases, commercial tenancies are typically rented for much longer periods and you may also negotiate options for extensions should you want flexibility by offering an extended option. The rent, on average, is also higher than the residential market and many lease agreements will also have a predetermined clause that specifies the rental increase or ‘uplift’. Knowing the amount that your rent will increase will assist with your cash flow planning. On top of this, the capital gain that your property experiences will also increase the value of your investment, often making you more than the rent itself.

However, this is not to say that all commercial property will be a lucrative financial exercise. If you have a certain amount of income that you need to recoup via rent, make sure you purchase a property that is able to deliver this to you in line with the current market. Another factor to consider when choosing the location of a commercial property is the most likely type of tenant it will attract.  A purpose built space for a café might struggle to find a long term tenant, for example, if there is not sufficient demand for daytime dining or a lack of car spaces can deter others. Therefore, when purchasing your first commercial property, it’s best to spend more time researching and on due diligence and you will get more efficient at adding to your portfolio as you gain experience in this field.

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When it comes time to buy, you might be surprised to know that in the commercial space there are many options under which you can purchase a premise. Although money towards a deposit will assist, many people turn to their self-managed super fund to buy property due to the tax benefits it will deliver. Aside from you as the individual, you could establish a trust which will purchase the property on your behalf or through a company if you are set up in this manner.

So whether you buy an office, eatery, car space warehouse, retail space or medical facility, head online or check out some properties in person to get a sense of the market in the area where you wish to invest.

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