Blog

February 04, 2017

Investing in commercial property

Have you considered investing in commercial property? There is a growing interest in investing in commercial property especially here on the growing Capricorn Coast.  However investors need to be aware of the differences between commercial and residential property investment.  Obviously you can either owner occupied, this is to purchase a commercial property for your own business to use or you can invest in a commercial property and lease it out, receiving rent as income.

Important differences between commercial and residential property investment  may include;

  • Tenant is usually call a Lessee
  • Leases are generally for longer periods – usually several years with an option to continue for several more for example 3 years with a 3 year option
  • Rent is either automatically increased or reviewed annually in accordance with the lease agreement
  • Vacancies between tenancies can be longer
  • GST Goods and Services Tax applies to commercial property – both to the purchase price, rent received and any expenses in relation to the property
  • Maintenance costs are usually paid for by the lessee which means net rental income tends to be higher

As with any investment purchase it is a good idea to have clear buying guidelines.  Considerations may include; 

  • Location – consider visibility and accessibility, surrounding business
  • Infrastructure – consider current infrastructure but don’t forget to investigate future development which may impact your investment
  • Tenant quality – look for a strong corporate or government tenant with a long term lease, consider a property with a multiple tenants, consider the financial strength of the tenants – do they have the ongoing ability to pay the rent?
  • Building quality – how new/old is the construction? Will the building require significant capital expenditure? Is the internal design flexible to allow for a changed layout if required to attract a different type of tenant?
  • ROI Return On Investment – what is the current return, is it below or above market, are rental reviews tied to CPI or incremental? Who is responsible for building maintenance? 

As you would with purchasing a residential property ensure a comprehensive inspection is completed prior to purchase to limit the risk of unexpected costs such as maintenance issues. 

Natalie our Commercial Sales Agent and Troy our Commercial Property Manager at @ Real Estate Yeppoon work as a team to find commercial investors suitable properties and tenants to maximize investors return on investment.