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Are you suited to commercial investments?

Tuesday, 2nd Feb 2016

commercial building orangeAcquiring the right commercial property will prove to be a great investment asset, however what type of investors are suited to commercial and why?

Despite much of the media coverage focusing on the residential market, commercial property can play an important role in anyone’s property portfolio.

However, it’s typically only suited to investors who have reached a certain point in their investment journey.

So who are these investors?

To put it simply, commercial property is usually suited to investors who want more cash flow.

Generally, commercial property offers net yields of between 7-9%, compared to residential property of between 3-4%, and therefore provides investors with a handy stream of income.

Those about to retire should consider investing in commercial property as a means of substituting their salary once they’ve finished work.

However, you don’t necessarily need to be nearing retirement to consider commercial.
Investors who have already built a sizeable portfolio of residential properties should also consider commercial as a means of diversification.

As a general rule of thumb, investors should hold at least 4-5 residential properties before buying commercial assets. However, each investors’ situation is unique and advice should be taken from a reputable property investment advisor.

Investors considering investing in commercial property should also possess the following:

• Hold substantial equity as commercial property is a higher price point
• Understand the risks and returns as these are different from residential property
• Is comfortable with longer vacancy periods, which is typical in the commercial market
• Has the time to do significant research to find a good commercial property (or willing to appoint a buyer’s agent to do the work for them)

An alternative to direct investment is to consider investing via a syndicate or unit trust, where you own a smaller piece of the property but you have the ability to diversify and spread your risk through a wider number of properties.