Commercial Property Investment: Some Key Points to Know
Most property investors
in Australia feel comfortable investing in residential property – after all we all live in homes so it’s familiar territory. If you are serious about investing in property, however, it’s wise to broaden your options and look at commercial investments
as an alternative or addition to your portfolio.
Many investors are under the false impression that investing in commercial property
is only for “the big end of town”. In fact, many sectors offer excellent opportunities for smaller investors as well.
Commercial property options range from offices and retail space to storage facilities, car parks, industrial properties
such as warehouses and factories and healthcare facilities.
Investing in commercial property, however, has many differences from residential property so here are some key factors to keep in mind:
- The tenant is referred to as the ‘lessee’
- Leases are generally much longer than is the case with residential property, from three, five and up to 10 years.
- There can be longer periods of vacancy if care is not taken with the choice of property
- Rent is most often reviewed annually and tied to increases in the CPI (Consumer Price Index)
- The lessee generally pays for expenses such as Council and water rates
- The lessee is able to make changes to the property (ie repainting and fit-out) but is usually required to vacate the property in its original condition at the end of the lease
- GST applies to the purchase price of the property, all rent received and all expenses relating to the property
Financial institutions will typically lend up to 60 to 70 per cent of the purchase price of a commercial property.
As with any investment, research is critical. Factors to consider when purchasing commercial real estate
include location and demographics, tenant quality and vacancy rates, rental yield and future capital expenditure versus capital gain.
As a trusted and experienced commercial real estate agency, Silvio Property is able to provide the knowledge and backing new commercial property investors need to make the leap from residential to commercial with confidence.