Newsletter Articles
Investing in Commercial Property - Tips & Benefits
If you value diversification in investment assets, purchasing commercial property may be an option for you. Many investors limit their diversification to a choice between either residential property or shares but commercial and / or industrial property can add variety and balance to an investment portfolio.
The general advantages of commercial property are that you receive higher rental yields and longer terms for tenancies by having a business as your tenant. The disadvantage with commercial property can be liquidity if you need to sell the property.
Borrowing for commercial property generally requires you to have substantial equity as a deposit. To borrow for commercial property traditionally you have required a 30% deposit for the loan. In recent times there are more loan products available that only require a 20% deposit. There are also a variety of low doc loans available as well (loans that don’t require tax returns to assess affordability).
Choosing the right property…
Like any investment property you want to look at the rental returns and consider the type of tenant that you will want to attract when you search for a property. You want a long-term tenant and you want them to pay good rent so the strength of economic conditions in the region where the property is situated will be important. You should also consider the local development plan to see what is the likelihood that future commercial space will be created to compete with the property you are looking to purchase.
Selecting a property with the features that will be useful to potential tenants and you will increase the demand for the floor space you have available. As rents are usually on a per square metre basis the size of the property is obviously important. Other aspects to consider are things such as walk-by or drive-by traffic, visibility from the various distances on the roads, parking and access to parking off the major roads the property is on, premises design, structure, position, access, power delivery and capacity, ceiling heights floor loadings, services, permitted uses and zoning. Selecting a property with good features will help ensure you property retains value over time and will maximise your chance for capital gains.
When you buy a commercial property make sure you get good professional advice with respect to the condition of the building, permitted commercial activities, a property survey, and the terms of existing leases on the property.
Buying a premises to run your own business from…
Rent money is dead money. It is a common saying in the home loan market but many business owners take it for granted that they will rent the floor space their business occupies.
As a small business owner you can gain an advantage if you purchase the commercial space your business resides in if you can pay less in interest than you would in rent. There is no hassle of dealing with a landlord to renegotiate a lease and no risk of a landlord not renewing your lease and forcing you to move premises. If you need to modify the property you have the flexibility to do what you like rather than seeking landlord approval.
If you can take some time to work out what the space requirements of your business are going to be in the coming years you can make a decision on whether it is worthwhile to stay in your current premises or look for a different location. Work out the cost of the property where you wish to be long term and work out if the interest costs on a loan would be less than the rent you pay.
As well as increasing the security of your business location you also have the opportunity for capital gain and the ability to earn an income as a landlord when you sell the business when you wish to retire. This adds an extra reason to work hard in building your business and develops another alternative revenue stream for you long-term.
Resources When Searching For Commercial Property...
The following resources can provide you with information when considering a purchase of commercial property:
Commercial Price Guide – for recent sales in various postcodes around Australia.
http://www.commercialpriceguide.com.au
PRD research – free research reports on commercial property
BIS Schrapnel Commercial Property Research – for research reports on commercial property.
http://www.bis.com.au/commercial_property/commercial_property_home.html