A well-chosen commercial property should provide a good steady return on investment (ROI) and, over time, increase in both rental potential and capital value.
Good tenants or lessees will assist in increasing equity in your property and if well maintained will always be a tangible asset.
With a good real estate agent providing the best in service, management of the investment requires little time, from the landlord’s point of view.
There are some good reasons to invest in commercial property, including:
Commercial property is a solid, long-term investment
Commercial property is an investment which is not too difficult to understand for most investors
Commercial property market information is easily accessible
Commercial property typically offers higher yields than residential property, with average yields ranging from five to 10 per cent depending on the type of tenant and the terms of the tenancy
Business owners can take advantage of buying the commercial premises they need to occupy
You can use your Self-Managed Super Fund (SMSF) to invest in commercial
Buying a commercial retail, office or industrial property requires similar research to residential purchases. The principals are much the same as any property investment but the results can be even more rewarding.
We all expect our investment property to grow in value, both in the eventual capital value and in the rent that it will generate. Therefore a choice needs to be made on two important criteria, location and quality.
Keep in mind that this is not a property that you will occupy and always look at the property through the eyes of a potential tenant.
A property located close to transport, with good access and parking facilities will be in greater demand and usually command a higher rental.
The building needs to be desirable and the right size to suit the area’s typical commercial requirements.
The building should be sound and as low maintenance as possible.
As a rule, more modern buildings require less upkeep and are usually more desirable to tenants
Commercial buildings must comply with strict safety requirements for their occupants. Make sure any property you consider meets these requirements or be prepared to invest in their upgrade
A wide range of lending institutions are prepared to lend on commercial property.
Institutions such as banks, second tier lenders and credit unions, etc. will have details on the different options available to meet your specific needs.
First National Commercial can offer you assistance through our affiliation with AFG, Australia’s largest lender. Finance can be offered from a range of competing lending institutions to ensure the best possible deal for you. Details can be obtained by contacting your local First National Commercial.
Negative gearing is a common term associated with property investment. In simple terms, it refers to the situation where your outgoings may, particularly in the early stages, exceed the incoming rent of the property.
Where this occurs, there is the ability to gain tax advantages by claiming tax deductions on the outgoings.
If you are a PAYE taxpayer, you don’t necessarily have to wait for the tax adjustments. You can apply under section 221D of the Income Tax Assessment Act for a tax reduction.
Nonetheless, negative gearing is not for everyone because there are some risks. Property values may decline from time to time, the flow of rental income may be interrupted, interest rates may rise or your ability to finance the cost of your borrowings may suffer. Investors need to take account of their ability or willingness to deal with these risks and to discuss them with their advisors before negatively gearing an investment property.
For further advice on negative gearing and appropriate application to Australian Tax Office, we would recommend consulting your accountant or financial advisor.
Successful investment in commercial property requires the property to increase its income and value over the long term. Investment in commercial property is not suitable for the short term, even though it sometimes can provide a benefit.
Absolutely! Specific insurance packages are available to commercial property investors that not only cover the normal building and contents but also protect you against a tenant defaulting on rent payments, vandalism etc.
Your First National Real Estate agent or insurance company can provide further advice on such aspects.
All property requires ongoing maintenance.
There are landlords who take an active and hands-on role in the management of their property and those who are happy to have an agent professionally manage their investment.
Obviously, those who manage their own property must be prepared to oversee their own repairs or organise a qualified tradesman, do their own cleaning and collection of rent. Preparation of leases is usually done by a solicitor and this is the recommended path to follow.
Frequent changes to Acts of Parliament in each State mean changes to the way the property is administered. Many of these include administrative duties like appropriate records being kept, for example receipting, access notices for inspections, inspection sheets, bond investments or bank guarantees.
In addition, they are required to:
Ensure the premises are clean/secure and fit for occupation at the beginning of the lease
Ensure all facilities are in good working order and safe
Be available to arrange urgent or essential repairs
It is vital that all landlords who manage their own property are completely familiar with the legislation in their state which governs industrial or commercial tenancies.
As you’d expect, there are various costs associated with property investment in addition to the maintenance costs.
When you acquire a property, there are government charges by way of stamp duty and registration fees on the transfer of title and mortgage. There are also solicitors’ fees.
In addition there are real estate agents’ fees for managing your property and selling it if you decide to do so in due course. Your real estate agent can assist you in the calculation of these costs.
As with any rental property, your commercial property must be able to meet the market and be competitive with other properties being leased.
If managing your own property, it is essential that you compare your property with that of others by using a comparative market analysis, in which all aspects of the building and its location with several others of similar size and type.
This may present challenges, given that you may not know the rent charged nor the condition of the property to which you are comparing and any of its internal improvements.
An experienced property manager can provide a realistic market analysis. He or she can inspect your property and compare with similar commercial or industrial properties under their management.
Because they are aware of the commercial rental market, they will be able to set a rent that will allow your property to be leased at the earliest possible opportunity, whilst ensuring you get the best return for your investment.
Marketing your commercial property for lease is something that requires careful consideration.
Making your property stand out amongst the myriad of competing properties being advertised requires skill and experience.
The rent being asked, location and attributes of the commercial property location are all aspects that prospective tenants will take into account when considering a property to be leased. Targeting their needs is something your First National Commercial agent is expert at.
Our commercial real estate network of offices regularly attracts many rental inquiries from prospective tenants waiting for properties to become vacant.
In addition, our expertise in marketing and presenting commercial properties makes the process far more effective and cost-effective than private marketing efforts.