When’s the best time to diversify into commercial?
Commercial property should, at some stage, be considered as part of every investor’s asset mix, but when’s the right time to take the leap and add it to your portfolio?
Typically, commercial property plays a different role in your investment strategy compared to residential assets.
As a general rule of thumb, investing in commercial property is best done when you want higher cash flow, for example, at retirement when you need to supplement your income.
Conversely, investing in residential property is a strategy for investors starting out in property. It provides a lower rental return but generally a higher expected capital growth rate.
Why commercial property for cash flow?
Commercial property can deliver yields of between 7-9%, compared to residential yields of 3-4%, which is why commercial is best for when you need additional cash flow.
These higher yields will supplement your income at retirement and provide the cash flow you need for your everyday living expenses, as well as for travel, recreation, dining and any other costs.
Generally, investors should start considering commercial property investment when they have built a portfolio of at least 3 or 4 residential properties.
However, there are no hard-and-fast rules and adding commercial property to your asset mix will depend on your investment strategy and goals.