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Property Investment: Commercial or Residential

What’s the Right Option for a Property Investment: Commercial or Residential?

March 21, 2016

Generally, people think that when it comes to invest money as property investment, residential property seems to be the most likely option as compared to commercial property investment. However, times have changed and a growing number of investors are finding potential in commercial property and are cashing in. Especially the investors in the age range of 40 to 50 years are utilising their self-managed superannuation funds to invest in small commercial properties in great numbers.

A commercial property that is primarily used for business purpose are meant to operate with retail, office and industrial units. To investors, commercial properties provides better returns that is quite similar to residential assets and sometimes can achieve a return of up to 10%, after costs, depending on the asset class and risk rating.

Investing money to buy a commercial property has also become convenient for many with the availability of commercial property loan. Moreover, investing in a commercial property has benefits as it is characterised by longer leasing covenants than residential property – typically three, five or 10 years – with fixed or CPI annual increases and the added benefit of the tenant meeting the cost of all outgoings, including land tax if the tenant is publicly listed.

Since this form of investment in commercial assets shows huge potential in terms of growth, there are certain risks involved too. While looking at the past, the outcome and stability of commercial property is far less predictable than residential property markets, with the potential for longer vacancy periods and poor resale for some specialised assets, influenced significantly by economic factors such as unemployment and consumer confidence.

Moreover, investors can sometimes face stricter lending conditions and may have to deposit a minimum 30 to 50% of the loan value. Thus, while considering investing in a commercial property there are several things that an investor should consider beforehand.

While investing in a residential property, the location of the property is of prime importance. The risks associated with commercial property are higher;however, the benefits are even better. If you are willing to buy a commercial property and need financial assistance for a commercial property loan , talk to the experts at Loans Direct.

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