Commercial Loan Banks and Lenders

‘Commercial property’ covers a range of options from office and retail space through to car parks and industrial properties such as warehouses and factories. It may be surprising, but investing in commercial properties can be affordable, sometimes costing less than many residential properties

Commercial vs. residential property

Long term leases

Commercial property leases usually run for longer periods than residential properties – several years rather than 6 to 12 months. This gives you greater certainty of rental income, plus rents tend to be reviewed annually. However, vacancy periods can be longer.

The impact of GST

Goods and services tax (GST) applies when you buy a commercial property, so allow an extra 10% on the property’s purchase price. As an investor, you can claim the GST back as an ‘input tax credit’ against GST charged on the property’s rent.

The lessee pays maintenance costs

Unlike residential property, the costs of maintenance, rates and repairs on a commercial property are paid by the lessee – not the landlord. This means more of the rent you receive goes towards your profit. However, be sure your commercial lease spells out who is responsible for the property’s ongoing expenses.

Some commercial properties serve a limited purpose

It can be harder to secure a lessee on a property that’s designed for a specific purpose. Opting for a property with multi-use appeal can help you attract a broader range of tenants.

Location is still key

As with any property investment, location plays a big role in the success of commercial property. Look for an area offering good transport links, a nearby pool of workers, and surrounding businesses that could offer support to lessees.

Could a commercial property deliver better rental returns?

Commercial property is usually regarded as a higher risk asset than residential property, and reflecting this, the rental return is usually higher. However, the decision between investing in residential or commercial property is a personal choice that will depend on the investor’s financial circumstances, goals and willingness to take on this higher risk investment.