Commercial property investments seem to be the best option for all those savvy business heads and investors looking for higher rental yields. The percentage of possible returns on commercial property investment is getting higher and higher as office, retail and industrial property yields have been experiencing both tax benefits like negative gearing, depreciation, reduced CGT rates and low volatility. The percentage increase in commercial property yields have been in the range of 6% according to a Residex research. All these facts make investing in a commercial property seem more attractive.
Advantages of Buying a Commercial Property
It is not necessary that you need to be in business to invest in a commercial property. This wise investment could be a blessing for both non-business and business people alike. It is a cost effective solution to save on your rental charges every year. It is a better option compared to leasing as it adds more value to your assets and saves on the extra cost you might end up paying when you lease. Some of the advantages of buying a commercial property are
As mentioned earlier, commercial properties are obvious winners against residential property when it comes to the aspect of profit and returns. Commercial properties could bring in an average of 5 to 10 % of yields and the exact yield could depend upon the tenant and the terms of tenancy.
Several tax benefits can be availed when a business owner is able to buy the commercial space they are currently using for their business. An additional benefit of being a commercial property owner is that the tenant usually pays for most of the outgoings like council rates, insurance, repairs and maintenance.
Banks are more favourable towards commercial property in lending. Even non-bank lenders are also interested in making use of the commercial boom. Thus, commercial property provides a much greater choice, lower rates and flexible terms in case of credit and leverage.
Choosing a Commercial Property
While a wise commercial property investment can bring in high yields, it has certain downsides too. It can be a risky business if you don’t make the right selection. Some of the most deciding factors that you need to consider before buying a commercial property are:
The quality of the lease, its stability and duration until expiry are important factors that need to be given a heavy weightage when you are trying to buy a commercial property. A property with a stable long term lease is a much better choice than one that has only a few days left until its expiry.
The location of the property must be suitable and convenient for the effective execution of the tenant’s business process. Proximity to transport facilities, supplies and resources needed by the business can add value to your property.
Understanding the tenant’s business is a necessary step you need to take before investing in any commercial property as any risk associated with their business could affect your returns. A long term and stable business like a multi-national company or a government agency could reduce the risks, whereas a retail business that is susceptible to market changes can be too risky for investment. Risk levels are also used in the charging of interest rates by lender.
The best way to buy a commercial property is to start with your requirements. Commercial property types include office spaces, warehouse, retails, factories and the like. Choose the type of property you would like to invest in and analyse the costs and benefits. You can get consultation from a legal advisor before you make the investment. Assess the costs of maintenance, renovations, and the possible concessions on tax and estimate your returns. After selecting the property that meets your requirements, research on the surrounding area. Make sure you perform a risk analysis of the tenant’s business and check with their lease terms and expiry profile too. Secure the funding and make the purchase under verified and legal terms and conditions.
You can make use of a competent managing agent to manage your property. Commercial property management fees cost lesser than residential in the range of 3 to 5% of the monies collected.
Buying Commercial Property in Brisbane
Brisbane is one of the major cities in Australia, where commercial property investment has been witnessing good results. Next to Sydney, Brisbane has been the favourite location among investors due to its lower entry prices and prospects of future growth. Even the National Australia Bank has suggested it as a viable investment location that is set to have a moderate growth in 2015. Some of the reasons, why investing in a commercial property in Brisbane is considered to be a better option are:
The property clock published by the Australian Property Institute has plotted Brisbane in the upswing, meaning that Brisbane is slow to achieve the market peak compared to Sydney and Melbourne making it the only capital that will still be on the upswing even after a year. Thus, investing in Brisbane is a good way to leverage the gains of a growing property market.
Manish is founder of Business2sell Group of Websites.
Business2Sell.com.au is one of the leading business and franchise for sale listing websites. We work with our business brokers, commercial agents, franchisors and private sellers to help them connect with the right buyers for their opportunities.
With website now functional in Australia, United States, United Kingdom, Canada, New Zealand and South Africa. We have over 18,000 businesses for sale listed, with over 220 Business Broker and Commercial Agent.
I have over 20 years of experience in Web Industry; I have been involved in websites industry since the early years of 1996-97. In my professional career I may have worked for over 10,000+ websites. My Specialty is to build portals or complex online applications.
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