Our response to limit the spread of COVID-19 | Read here
Untitled-1

Should you invest in commercial or residential real estate?


When investing in property, most people typically consider residential options, e.g. a unit or house. However people are increasingly considering investing into commercial property as an alternative.

Commercial real estate is used either exclusively or primarily as a business premises. Commercial property has many similar attributes to residential:

  • Property values tend to fluctuate, and turnover is typically low
  • It pays a steady monthly rent while tenanted, and rents tend to increase as the economy grows
  • You might be able to depreciate some of the items within the property

However, commercial property has some key attributes that are vastly different to residential property, including:

  • Commercial property yields are often higher than residential yields in metropolitan areas
  • Commercial property lease terms are typically three years or more
  • Commercial property tenants are usually responsible for all maintenance of the premises
  • The ability to find a tenant for commercial property is industry specific, i.e. if you have a retail shop, your ability to find a tenant is influenced by the strength of the retail industry

So if with commercial property you can get higher returns, longer leases, and the tenants are responsible for maintaining the property, shouldn’t everyone be looking at buying commercial property? Not necessarily as it does come with a unique set of risk factors.

Tenant turnover can be very slow in commercial properties, so you need to be prepared with sufficient cash reserves to weather the slower periods. If you’re borrowing to invest, could you handle 12 months of vacancy of your property? Furthermore, when you’re investing into residential property, it doesn’t matter if you rent it to a doctor, tradesman, teacher or student – as long as they pay the rent and look after the property. But with commercial property, your rental income is intrinsically linked to the fortunes of the businesses that will want to rent your property. If you own a retail shop, it’s highly unlikely that it’s going to appeal to a non-retail business.

Overall, a great commercial property could be an excellent investment. But its attributes are very different to residential property. In some cases, commercial property returns can outstrip that of residential property, however that can come with an equally higher level of risk.  As with any investment, do your homework and make it’s the best option for your individual investment strategy.


You may also like

How to live off a single income

Whether you’re going on maternity leave, looking after elderly parents or pursuing your own business, a little bit of planning before dropping to a single income will go a long way. Here are some ideas to help make the transition smoother.

Read more

How to invest in property if you can’t afford a house

Owning a home is the great Australian dream. But what can you do if you can’t afford a house? Find out your investment options.

Read more
Talk to us

Guaranteed
value

We’re so confident about creating value for you quickly, that we guarantee it with a 100% money-back guarantee.


Call us for a free strategy session

Arrange a call back

  • This field is for validation purposes and should be left unchanged.
Untitled-2 Untitled-2

Arrange a call back

  • This field is for validation purposes and should be left unchanged.

Our response to limit the spread of COVID-19

  • As COVID-19 continues to spread, we would like to take a moment to let you know what Financial Spectrum is doing to respond.

    While we haven’t been directly affected with any confirmed cases, we are taking all reasonable precautions to remain safe.Our priorities are:

    1. Keep our staff and clients safe
    2. Stay fully operational in our service delivery and continuing to manage your financial affairs
    3. Play our part in minimising the impact on our community against the spread of COVID-19

    Financial Spectrum has the technology, infrastructure and systems to continue business as usual remotely and our staff will now be working from home.

  • You should notice no change to our service, with the exception that we are encouraging our clients to meet via video call, rather than face to face, unless requested. We will be contacting all clients with meetings booked over the next two weeks with instructions for a video call.This is an evolving situation and we will continue to monitor developments. We will keep you informed of any material changes to our approach.

    These are unprecedented times and we understand that many of you will be feeling unsettled about your finances. We would like to assure you that we are open for business and are here to help you. If you don’t have a meeting booked but would like one, or if you have questions, please contact us at info@financialspectrum.com.au or on
    02 8238 0888

Brenton Tong

Managing Director

Google Review

Google Rating
5.0

Register

Looking for something?