Commercial property can offer higher yields, lower maintenance costs, and longer leases than residential property, making it an attractive option in the current market for mum-and-dad investors. While small-scale residential property investing is common, commercial landlords are typically larger property groups or investment funds. Although there are similarities between residential and commercial property investing, key differences must be understood – yet there are many ways in which everyday Australian’s can enter the commercial property market.
One popular method to begin a commercial property portfolio, especially for business owners, is through a self-managed superannuation fund (SMSF). The SMSF can purchase business premises and lease them back to the business, effectively making the fund owner their own landlord. However, regulations require that the lease be at market rates, with no discounts allowed.
Given the current market, it’s a great time for mum-and-dad investors to enter the market. Properties are staying on the market for longer, leading to some attractive deals. Capitalisation rates, which measure the return on investment, range from 4% -8% depending on the property’s quality and location. For properties with less secure tenants, rates might be closer to 7% – 9%.
Costi Cohen is working with a record number of mum-and-dad investor clients looking for premium grade passive investment properties. They are favouring industrial warehouses, shopping centres anchored by major retailers like Aldi, Woolworths, and Coles, as well as childcare centres, service stations, and fast food ‘drive-thru’ outlets. These properties are particularly appealing because they often house strong national and ASX-listed tenants, providing investors with a sense of security through long-term, stable leases.
One consideration is that commercial properties can remain vacant longer than residential, which can disrupt cash flow. Costi Cohen have been purchasing investment properties with a core focus on properties that are already leased with longer lease periods. Lease terms last anywhere from three, five or 10 years, and ideally, properties should have at least two years left on the lease with an option to renew.
A major advantage of commercial property investment is the also lower ongoing maintenance costs compared to residential properties. Residential properties often require active management and regular maintenance, whereas commercial properties typically offer a more hands-off approach and in some cases, the tenant is usually responsible to pay all outgoings included taking care of any repairs and maintenance.
When considering your next commercial property investment, it’s essential for investors to do their research and know how to navigate finding the best deals in the market. This includes understanding market values, checking proximity to amenities like public transport and shops, and investigating any upcoming infrastructure projects that could impact the property.
To discover how Costi Cohen can assist with your commercial property search, please call us on +61 02 8934 3414 or email [email protected].
