Top 5 benefits of commercial property investment

In today’s tough economic climate, many Australians are looking for a way to boost their savings. This has led countless people to invest in residential property. However, if you’re looking to grow your property portfolio and add an element of serious income generation possibilities, consider commercial property investment. 

Here are the top five reasons you should invest in commercial property.

1. Earn higher rental yields

The average Australian residential property earns a gross rental yield of only 3.6% per year. At InvestorKit we are regularly sourcing gross yields on residential property of 5-7%+. However, commercial properties are much higher earners even against those numbers. In fact, you can expect a 7-10%+ annual rental yield (NET) on your commercial property. 

2. Benefit from longer leases

The typical rental term of a residential investment property is between six to 24 months. This can lead to a lot of instability – both financial and the type of tenants you can expect. 

Fortunately, with a commercial property, this is not a concern. Three to 10-year leases are quite common; as are variations, like a “five plus five” year term (i.e. five years fixed, with the option to renew the lease upon expiry). 

3. Benefit from regular rental increases

Annual rental increases are a common feature of commercial property agreements. To lock in this increase, you can either set an agreed upon rate (i.e. 2%-4%), or a rate which is indexed in line with the CPI.

Over time, these rental increases can add up, drastically increasing your cash flow (an in most cases your property value too). For example, if you’re renting your commercial property out for $100,000 per year, a 4% increase will bump up the rent by $4,000 annually. 

4. The lessee can be responsible for all outgoings

In a residential property, the landlord has to pay the majority of expenses, such as: 

• Rates
• Insurance
• Land tax
• Water tax

However, depending on the lease, commercial property tenants are generally responsible for these expenses. Under a Gross Lease, tenants pay a fixed sum monthly and don’t contribute to outgoing expenses. And, under a Net Lease, tenants pay a base rental amount and contribute to outgoings. 

5. Chance to diversify your portfolio

Residential and commercial properties follow different cycles in the market. Put simply, if you have multiple residential properties in close proximity, you will have to weather dramatic swings in market conditions.

However, if you have one (or several) commercial properties, shifts in the market tend to balance out. This means your income from the investment property and value changes may have more consistancy. 

Are you ready to take the plunge? To learn more about how a commercial property investment can benefit you, contact the InvestorKit team today for a free consultation.