Invest in Commercial or Residential Property?

Purchasing residential property can be a great starting point for investors. Investing in a house, townhouse or apartment is often familiar and easy to understand.  However, it may also be worth considering commercial real estate for your next investment property.  Commercial real estate are properties primarily used for business purposes.  There are a wide range of choices available such as:

 

  • Retail store
  • Office building
  • Warehouse
  • Industrial
  • Factory
  • Workshop
  • Hotel
  • Car park
  • Child Care centre
  • Service station
 

Commercial investments such as parking spaces can start from as low as $50,000. Larger investments can rise to well-above the price of a house. So there are a range of options to suit your investment budget. A Suitable Loans Commercial Finance broker can assist you with finance for your commercial property purchase.  As with any investment it is important to know some of the risks and benefits. Here are some factors to help you consider what type of investment property might suit you:

 

Benefits of investing in commercial real estate vs. residential:

 

·        Higher yields

Commercial properties typically generate higher rental yields compared to residential. Yield refers to the rate of rental income relative to the purchase price of the property. As such, it is not uncommon for commercial properties to have a positive cash flow.

 

·        Long-term tenants

Lease agreements for business tenants can range anywhere from three to ten years. Residential leases usually only last about a year, and can even be on a month-by-month arrangement. A business tenant can help provide some security in the long-term.


·        Annual rent increases

Unlike residential agreements, most commercial lease agreements include fixed annual rent increases. This helps rental income to keep up with inflation.


·        Low maintenance

Commercial tenants have a greater incentive to look after the premise since it’s where they run their business from. This means that you will be less likely to spend out of pocket on repairs and maintenance.


Risks of investing in commercial real estate vs. residential:


·        Economic changes

Demand for commercial property is usually tied to business confidence. In the event of an economic downturn some industries and sorts of business do better than others.

 

·        Higher deposit required

Most lenders require a higher deposit for commercial loans. Commercial property loans can also attract higher interest rates compared to home loans.


·        Research

Doing some research will help you gain a better understanding of how the economy’s condition can affect your commercial property.  Considering your risk profile and investment goals are important when choosing your investment property. Suitable Loans offer finance solutions for both residential and commercial property investments.


Talk to a Suitable Loans Commercial Finance Broker.

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