Buying commercial property as an investor
Commercial property works along similar lines to residential property though with some noteworthy differences that investors should be aware of.
One on hand, a commercial property can deliver both ongoing rent paid by the tenant – or in the case of commercial property, the “lessee”, as well as long term capital growth.
But in many ways the similarities stop there.
Longer leases, the potential for higher returns, but with higher risk
To begin with, when you buy a commercial property, GST (worth 10% of the purchase price) is payable on your investment. You need to factor this into your buying budget.
On the plus side, commercial leases tend to be long, usually a minimum of five years, and unlike residential property, the lessee pays for many of the costs associated with owning the building such as repairs and maintenance. This can make commercial property a lucrative and low cost investment.
On the downside, commercial property is also regarded as a higher risk investment than residential property. While the rent returns can be healthy, commercial properties can also experience longer vacancy periods. Commercial properties can be harder to sell too because the pool of buyers is typically smaller than for residential property, and the more specialised your property, the smaller the market may be.
Factors outside your control
Unlike residential property, where people always need a home to live in, the fortunes of commercial property can very much hinge on the buoyancy of the local economy.
Safeguard against this by investing in a commercial property in an area with a diverse economy, buying a building that may appeal to a broad range of businesses, and reviewing your cashflow to see how well you would handle periods of vacancy.
Professional support is essential for a good deal
Your Mortgage Choice broker can discuss finance options with you as well as explaining loan strategies to own commercial property including through a self-managed super fund.