When comparing investment in commercial property versus residential property, there are some pros and cons to be aware of.
With commercial property, there are three types you could consider: retail, office or industrial.
Each type has unique characteristics however the following guidelines can be applied to all three.
- A residential property might have average rental returns of 3-5% p.a., whereas commercial properties can have significantly greater rental returns of between 7-10% p.a.
- However commercial properties don’t grow in value the way that residential properties do.
- Commercial properties are more susceptible to the economic environment hence in a downturn, demand for commercial property reduces
- Usually investment in commercial property is for rental income rather than capital gains
- Rental income on commercial properties tend to be more stable as leases tend to be 3, 5 or 10 years.
On the flip side, when a commercial property is vacant it can take much longer to find new tenants. Instead of a week or two it can take months to find a replacement.
However, if you are looking at buying premises for your own business, owning the property will mean you will always be aware of what the tenant and the landlord are planning!
Commercial tenants are also responsible for all customisations, council rates, maintenance, property management fees etc. This can mean lower maintenance costs for a landlord.
Commercial properties can cost from a few hundred thousand dollars to tens of millions of dollars.
Lending transactions can be more complicated and often take longer than a residential home loan documents.
If you are interested in arranging finance for a commercial property, speak to John Kennedy, mortgage broker at Mortgage Choice in Mudgeeraba on the Gold Coast. We can help you navigate the road to achieve your goals.