Why everyone needs to consider commercial
Many investors disregard commercial property as an option because it’s not as familiar as the residential sector. So what are you missing out on and why is commercial property a key part of investment success?
Investing in residential property often comes more naturally because we’re more familiar with this segment of the property market.
However, commercial property plays a crucial role to reaching financial freedom and should be considered as a serious option by all savvy investors.
So why choose commercial property and when should I make an acquisition?
Firstly, and generally most importantly, commercial property provides much higher returns compared to residential.
Net yields for commercial property are typically between 7-9%, compared to residential of between 3-4%.
You might be wondering why bother with residential property investment if commercial provides significantly higher rental yields.
However, there is a simple answer to this. Generally, commercial property experiences lower capital growth than residential.
Therefore, investors should initially focus on properties that provide the highest capital growth to increase their wealth.
As a general rule of thumb, commercial property should be considered after building a portfolio of at least three to five residential properties, provided you’ve acquire high-performing assets.
Other advantages of commercial property are that there is limited maintenance and repairs, tenants generally pay outgoings, such as rates and taxes, and tenants are longer term.
Again, these have to be weighed against the drawbacks of commercial, which typically include longer vacancy periods, higher interest costs and higher deposits – quality commercial assets are generally at least $2 million.
Given this, commercial property investment is a great option for those approaching retirement who have already created significant wealth but require more cash flow. If you don’t have sufficient funds to invest on your own, a commercial syndicate might be suitable.