Buying commercial property can be a highly lucrative and rewarding prospect, but you need to be prepared for what you’ll face. The commercial property landscape works differently to residential investment, meaning there is a range of different factors to consider. If you’re ready to diversify your investment portfolio and jump into the commercial sector, consider the following advice.
Understand the Basics
As a lively metropolitan area, Perth is the perfect location to reap the benefits of residential and commercial investments. While the two processes work similarly, there are several critical differences to understand.
Earning Money from Commercial Properties
As with residential investments, commercial properties earn rental income for the landlord from a tenant. In commercial agreements, a tenant is usually called a lessee and the lease periods are typically longer than a residential tenancy agreement. This provides the lessee with a sense of continuity and the landlord with a long-term passive income. In fact, the returns from commercial properties can often be double that of their residential counterparts, making them a wise investment.
Lessees are often responsible for paying many of the costs that a residential landlord would usually be responsible for. Some maintenance costs, rates and taxes are among the expenses a commercial landlord can pass on to their tenants.
While lease periods can be higher, vacancies also tend to be longer. As well as this, GST will apply both to the property purchase and to any ongoing rental income if the parties are registered-usually are for commercial properties.
Remember – rental return is better but capital return is often less than residential property
Securing a Commercial Property
For some people, commercial property is the faster way to get into the investment market. Depending on the property, a commercial investment can often be lower priced, meaning you’ll need less income and fewer assets to secure your purchase.
Other Things to Consider with Commercial Investments
Commercial property investments have many advantages, but they are also more vulnerable to changing economic conditions. Demand for commercial leases will ebb and flow depending on the state of the local economy and business confidence, which could have a big effect on your earning potential.
Local competition can also have a significant effect on supply and demand, more so than with equivalent residential investments.
Other things that are important to consider for commercial properties include:
Building Age and Condition
A flexible property with minimal maintenance requirements is more important than ever for commercial tenants. There are many expenses involved in launching a business, so lessees will look for properties that require minimal maintenance and are adaptable to their needs.
Location and Infrastructure
The location can be as much about visibility as it is about convenience. Commercial properties often present a public front and need to be visible and accessible. Future infrastructure developments in the area will also be advantageous and infrastructure plans are often just as important as current amenities.
Workshops, strata offices and shopfronts are all popular commercial property investments. Health-related investments, such as dentist or pathology offices have also been popular commercial investments recent as well as coffee shops and fast food oulets
Buy or Lease Commercial Properties with Our Perth Team
The team at Gow Property are expert property managers for residential, strata and commercial properties. Are you interested in investing in commercial property or leasing a building for your venture? Contact our team today for advice or call us on 08 6389 7777 to get started.