Create more bang for your buck

The softening of residential property prices and a volatile share market in recent years have persuaded many mum-and-dad investors to switch to commercial real estate, through which they can preserve and grow their portfolio’s capital value.

The uptick in commercial property values has been particularly impressive for regional properties, while not detracting from their affordability, according to Burgess Rawson managing director Ingrid Filmer.

“To take just one example, the Warragul Bunnings outlet we sold in 2013 grew in value from $4.63 million to $5.57 million in just one year. That’s an increase of 20 per cent.” Ms Filmer said.

“By comparison, the median price of a Melbourne house edged up just 7 per cent in the same 12 months. Over three years, from 2013 to 2016, the same Bunnings property jumped in value by 39 per cent, versus growth in Melbourne’s median house price of 23 per cent.”

Next month, Burgess Rawson is offering the Horsham Bunnings property for sale.

“It’s likely to be one of the most hotly contested transactions in the coming portfolio auction for a number of reasons, in addition to its sound capital value fundamentals,” director Shaun Venables said.

“It is often the case that with regional assets, you get more bang for your buck. Our auctions are crammed with properties in amazing communities where customer loyalty is strong. Regional assets are less likely to have tenants competing fiercely in their respective markets, so their cash flow is predictable, leading to reliable income for landlords.”

Properties outside the metropolitan area are less likely to have the same yield challenges that plague certain urban assets, according to director Raoul Holderhead.

Commercial yields, which are the rent received relative to the purchase cost, can be far more attractive when compared with residential yields, which tend to be less than 3 per cent.

“Other advantages of owning a regional asset include having tenants that are household names associated with large corporations,” director Raoul Holderhead said.

“You can rest assured the rent will be paid on time, your property won’t be trashed, and that you will likely inherit long leases with built-in yearly rent increases.

Generally, commercial leases run between five and 15 years and almost always have additional options to extend the tenancy.

“All in all, landlords with commercial properties have fewer stresses to worry about compared with owners of residential investments.”

Each time the housing crisis is debated, investors with residential assets become nervous, he said.

“Already in the past few years we have seen regulations around owning residential investments tighten and housing tenants’ rights strengthen. This trend does not affect commercial property investments,” he said.

Other bonuses for commercial landlords are that, generally, tenants pay for all outgoings, fit-outs and maintenance which, together with annual rent increases, shore up growth.

Among the rural properties to be auctioned by Burgess Rawson at Crown Casino on December 11 from 11am are; a freestanding Coles in Drouin, Ararat Village Early Learning Centre, where the rent is likely to increase by $40,000 to $50,000 in less than three years, and Bairnsdale Centrelink, which is on a new five-year lease with options returning $186,000 a year.

Published in the Herald Sun.

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