It's not unusual for people to think about adding some property to an investment portfolio so they can diversify and take advantage of a buoyant market. In this case, individual investors will typically turn to residential options to add rental properties and take advantage of the regular income. However, if you are in this situation and trying to decide what to do, why should you look at the commercial real estate market instead? This could be a better approach to property investment for several different reasons.
Extra Yield
You may have identified opportunities in the residential rental market because there is a lot of demand at the moment. You may be able to purchase a property and get a good rental yield, but it'll probably pale into significance in terms of the yield you could get from a commercial venture.
Longer Leases
You will find that a commercial lease will typically last for a multi-year period. On the other hand, an average residential rental lease will usually be for no more than one year, and sometimes only six months. South Australia, for example, mandates that a retail shop lease must be for a minimum of five years, and clearly, this can create a steady income and a more solid long-term cash flow.
Inflation Adjustment
Sometimes, commercial rental contracts have an automatic provision to increase the rent on an annual basis by a set amount. This can be negotiable, but it is often linked to the cost of living index. It is not usual to find this type of clause in a residential rental agreement and can certainly make a difference when viewed over the long term.
Other Advantages
When you draw up a commercial contract, you may typically decide that the lessee is responsible for preparing the space for their own use, known as a "fit-out" in the industry. You may also require them to return the space to its former state at the end of the lease. Further, don't be surprised if the commercial tenant goes out of their way to look after the property for as long as they occupy it. After all, they have an image to maintain, and they'll want to impress any visitors at all times. Residential tenants are not under the same type of pressure, and while they may well look after the property throughout, this is not always the case.
Looking at the Prospect
These are just a few of the advantages when you consider commercial property investment. Yet, it is important to look at all the pros and cons and crucial that you get professional advice before you move ahead.
Share15 November 2021
Buying real estate can be complicated, and that's especially true if you are preparing to buy your first property. Whether you are buying your first home or your first investment property, you probably have a lot of questions along the way, and this blog is designed to help. If you need tips about hiring the right agent, deciding which property is the best, applying for loans or anything else, you have come to the right place. I plan to include posts like that as well as many similar topics. I am glad you find this blog, and thank you for reading. Good luck on your real estate buying experience.