Is Investing in Commercial Property a Good Idea?
When it comes to investing, there are a lot of options to choose from. For example, you can invest in stocks, bonds, or real estate. And within the real estate category, you can choose between residential and commercial property investments.
But what is the best investment option?
In this blog post, we will discuss the pros and cons of commercial property investment to help identify if this option is right for you!
Pros and Cons to Investing in Commercial Property
Here are our four pros and four cons of commercial property investment opportunities.
4 Pros to Commercial Property Investment
1. Commercial Property Annual Rent Increases
Commercial properties have a history of experiencing annual rent increases. So, if you invest in a commercial property, it's a safe bet that your rental income will increase over time.
This contrasts with residential properties, where the rents usually stay stagnant and can even decrease over time.
So, if you are looking for an investment with potential for capital growth and regular rental income, then commercial investment may be a good option!
2. Commercial Properties Extensive Lease Length
When you invest in commercial real estate, you are locking yourself in for a long-term lease agreement with a tenant.
The average length of leases is around four to ten years, so you can be assured of regular rental income for that period.
3. Commercial Properties Provide Higher Returns on Investment
Investing in commercial property generally provides higher returns than investing in residential properties.
Not only because commercial properties' annual rate increase is higher than residential properties, they are also usually leased out at a higher rate than residential properties. This gives you a higher rental yield and enables you to reduce your property loan faster. And in turn, investing in a good commercial property investment fund can create a quicker and higher return on investment than a residential property investment.
4. Commercial Property Owners Mainly Work During Office Hours
Depending on the property being rented out and the business' hours, concerned tenants will likely only contact you during office hours or during the day on weekends. This contrasts to residential property rentals, where tenants could contact the property manager at any hour.
4 Cons to Commercial Property Investment
1. A Commercial Property May Have a Longer Vacancy
Whilst commercial properties have long tenancies; they also come with the risk of long vacancies.
For this reason, when deciding if commercial property is the right investment option for you, always factor a lengthy vacancy period into your calculations.
2. Commercial Properties can Require Expensive Repairs and Maintenance
As with all properties, commercial buildings require ongoing maintenance.
However, the scale of this maintenance is typically greater for commercial buildings when compared to residential dwellings.
This is due to many reasons, including the heavier wear and tear that commercial properties experience.
3. Economic Factors Influence Commercial Property Demand
When there is an economic downturn, the demand for commercial property decreases.
This is because businesses are typically the first to feel the pinch when there is a slowdown in the economy.
As a result, the commercial property market is often more volatile and has a higher risk associated than other investment options.
4. Commercial Properties Require Professional Services
If you are wondering how to invest in commercial property in Australia, there are many options available.
However, commercial property investors almost always need professional assistance to manage their portfolios. This can include tasks such as sourcing tenants, creating lease agreements, managing finances, and much more.
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