When you are interested in investing in property, it’s important to understand what return you are looking to achieve and the time period.
Commercial real estate is a property that is exclusively used for business purposes and can be classified across three sectors: offices, retail, and industrial.
What are the benefits of investing in commercial real estate?
Commercial properties generate substantial cash flow in Australian real estate, with exceptionally high yields when compared to residential properties.
Here’s the most significant advantages you should know if you are considering investing in commercial real estate assets.
Income Potential
As a tenant renting a commercial building, you would want as much security in your lease as possible to avoid having to relocate your business regularly. This is a benefit for any commercial landlord as this can mean a longer lease period is required.
For a commercial lease, the rental period can range from 1 year to 5 years, depending on the tenant. There is the option for the lease to be longer than 5 years.
As a landlord, there is peace of mind when your property has a tenant that has signed a longer lease.
Higher Rental Yield
Yield is the annual cash flow amount expected from an investment. Yield is a key driver for many investors that are investing in commercial property.
A high rental yield appeals to all investors. For commercial properties, a good rental yield is generally stands between 5% – 10%. This yield is significantly higher than the yield generated from residential properties, which is generally between 1% – 3%.
Gross yield is used to determine the rate of return that the property generates. It is calculated by the rental amount paid by the tenant divided by the property value.
Net yield is calculated the same as gross yield but takes into consideration the expenses and outgoing costs (including mortgage repayments and land tax).
Depending on their investment goals, most investors invest in commercial real estate to generate a significant ROI.
Practical tips for commercial real estate investors
The best investment decisions come from experience and guidance from experts. Seek guidance from those who have been in the industry longer than you have and who understand the ins and outs of commercial real estate investing.
Seek Guidance from Experts
Many first-time property investors may not have sufficient knowledge and experience about commercial real estate. It is crucial to have reliable industry experts to guide you in the right direction so you can seamlessly navigate towards achieving your goals.
Four industry experts who play important roles in helping investors build a successful commercial property portfolio include:
A Conveyancer: A conveyancer will handle the legal responsibilities required for you to purchase the property. They can help you understand and recognise any leases or legal issues that may arise. They will assist with the commercial real estate purchase and ensure settlement occurs smoothly.
An Accountant: Your accountant will do the numbers and can guide you through the tax benefits and review depreciation schedule of the property.
A Financial Advisor: A financial adviser will act in your best interest and ensure they prioritise your interests. The role of a financial advisor is to help you set your financial goals and keep you focused on achieving them in the timeframe set.
A Finance Broker: Your finance broker will help you find the best funding opportunity for each purchase you are looking into. They will liaise with the lenders to secure you the best deal.
These four industry experts will not only assist you with your first commercial purchase but will also assist you with future property purchases.
Takeaway
Investing in commercial real estate is a big decision. It can be one of the most profitable things to do over the long term with your money, but it can also be very risky. The benefits of commercial real estate are numerous and, in many cases, outweigh its risks. However, many people still shy away from the idea because they are unfamiliar with its structure and details. That’s why you should know as much as you can before getting involved in the long term.
Click here to contact QPG for advice or a free consultation about commercial property for sale or to begin your first commercial development purchase.
Alternatively, you can view QPG’s Property Services to learn more about what we have to offer.