When it comes to investing your savings, leaving your money in the bank is not going to give you a great return. Another option is the stock market but that’s looking a little overpriced and very volatile. The alternative and most common investment for many Australians is property, and with the lowest interest rates ever in our history, there could be no better time.
There are many different types of property you can invest in but for simplicity let’s just categorize them as residential and commercial.
Faced with low returns from residential property investments, many investors arelooking at commercial property which offers a better yield. Commercial property can include retail shops, offices, industrial warehouses, medical clinics and so on.
Let us consider the advantages and disadvantages of investing in commercial property.
- Commercial yields can generally vary between 4% to 7% net, or more, depending on the type of property and location. Residential property, on the other hand, averages 2.5% to 4.0% gross.
- Not only is the income higher on commercial properties, depending on the terms of the lease the tenants generally pay all outgoings such as council/water rates, building insurance
and so on (Net vs Gross return).
- Commercial Leases are much longer term (they can run for many years), compared to residential which are generally only for twelve months.
- Commercial leases require less management of the property.
- Unlike residential property, increasing the rental income on your commercial property directly increases the capital value of your investment. You can achieve this increase in value by either changing the use of the property or renegotiating a new lease.
- Retail and industrial properties can be severely impacted by a slowdown in the economy. If your tenant goes out of business the property may remain vacant for several months while sourcing a new tenant.
- In a slow market they can take longer to sell than residential.
- Borrowing costs on commercial property can be higher and banks will generally only lend 60-70% (LVR), which means you need more equity/cash to transact.
For a list of our commercial properties visit: hudsonbond.com.au/commercial or call Hudson Bond commercial on 9840 7700.