Advantages of Commercial Real Estate

Most Australians are familiar with investing in real estate and understand the value that a property portfolio can create over time. However, few properties investors venture outside the world of residential property and consider commercial property.

While commercial property is a little more difficult to understand than residential, it offers several significant advantages for investors. 

Higher Yields: Most commercial properties have far higher yields than residential properties. It’s not uncommon to see 7-10% yields on commercial properties, which is something that few residential properties can generate. The benefit of high yields is that your asset is contributing to your cash flow every month. Most residential properties are negatively geared investments. 

Lower Costs: Generally, the tenant of a commercial property pays all the outgoing costs associated with the property. That includes maintenance, rates and any strata fees. That means that the rent you receive each month is net of costs and the only real expense that you need to consider is property management fees. All leases are different, so it is important to get the lease reviewed prior to purchasing a commercial property. Commercial real estate loans are also available to finance the purchase.  

Loyal Tenants: One of the big appeals of commercial properties is that they have long-term leases. It’s not uncommon to see commercial properties leased out to the same tenant for many decades. The reason for this is simple; it is the place of business, and the location is often a vital component of a business. However, the flip side of a long lease is that it can take longer to attract a new tenant in the event the business decides to end the lease. 

Steady Growth: Commercial properties are priced a little differently from residential properties, in that the price is based on a multiple of the lease price. This can make commercial properties a little harder to understand for many new investors. The important thing to understand is that lease increases are generally incorporated into the lease. What this means is that each year the lease will increase in line with either inflation or the broader market. 

 Capital Growth Potential: Many people believe residential property is superior to commercial because of the ability to improve a property and add value to it. However, this is equally true of commercial property. As mentioned, the value of the property is tied to how much that property leases for. Anything you’re able to do to increase that lease will mean a higher property value. Things like renovations and subdivisions are quite feasible with commercial properties. Moreover, even if a property is financed with commercial real estate loan, the investments continue to grow. 

Ultimately, whether to invest in commercial or residential isn’t mutually exclusive. A balanced property portfolio should contain a combination of both residential and commercial, and the mix will depend on where you are in your investment journey and what your financial goals are. 

WHY YFA

Our motto has always been “Honesty” and Over 20 years, we have always believed that understanding the customer requirement should be the priority. We are very passionate about helping individuals and families to identify financial goals with the correct focus on their plans for the long run through our home loan broker in australia.   

 We feel proud and blessed to win awards because of successfully assisting people to achieve financial success. What makes us stand out from others is the utmost trust from our clients who have trusted us. We have always aim to provide updated yet useful blogs by adhering to traditional values of transparency and integrity, while continuing to bring steady and consistent performance over the long term. Our home loan advisor is always there to assist you.   

 We love going beyond the bolts of financial crisis in an easier manner just to help people believe that money never blocks their happiness.

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