A commercial investment property can give you better returns than a residential one. According to CoreLogic RP Data, residential properties return an average of 3.6%. Commercial properties can give you anything from 8% to 12% gross rental yield.
So what’s the catch? Well, the start-up costs are higher, and a vacant commercial property can cost a lot more per month to maintain than a tenant-less residential one. Fitting a tenant to a commercial property can also be more difficult, because businesses are very particular about facilities and locations, and don’t like moving.
So, here’s what you need to look out for when buying a commercial investment property – the ten best ways to help you avoid some common pitfalls.
1. Choose the right moment to invest
There are times of strong growth when businesses tend to start up and commercial spaces are suddenly in demand. It’s important to assess the current economic climate, and research things like the forecast for interest rates. If rates are predicted to remain low or even drop, for example, it means businesses will be able to borrow money more cheaply, and that may drive the demand for more office and retail space.
2. Keep yourself informed
Become a member of a local chamber of commerce, and subscribe to a business information source such as the Financial Review to stay on top of what’s happening in the market.
3. Find a dedicated commercial real estate company
A company that specialises in commercial property investment can take a lot of the hard work out of the process. Constant communication with the market – from tenants to builders and tradies – means they know what’s moving where, and can advise you accordingly. They will also be in touch with the right tenant base.
4. Look for a hot location
There are three types of commercial property: industrial, office and retail. The main thing to look out for is location, location, location. According to a report on realcommercial.com.au, Sydney’s hottest area is out west in Parramatta, while Melbourne’s CBD fringe of St Kilda saw office vacancy rates fall in 2015.
5. Ensure that parking access is adequate
Does the property have parking? If not, is it close to a convenient parking centre? There is no point buying a commercial property in the Sydney CBD if there is no place for tenants, their staff and visitors to park their cars.
6. Check on disability access
Federal law requires that people with disabilities have access to commercial buildings and workplaces. Does the property you intend to buy comply with this code? If not, you should investigate what the cost of compliance will cost you and add that to your initial outlay.
7. Negotiate who does the fit-out
You should ask yourself what kind of fit-out your potential lessee is looking for. Can you tell them that the property is on/soon to be on the National Broadband Network? Are there enough power outlets for today’s technology-heavy office? You’ll also need to negotiate the cost of any re-design or fit-out with the tenant.
8. Beware of holidays that cause delays
If the tenant is moving in over a major holiday, factor in the likely lack of tradespeople – and a subsequent delay to your rental income. An advantage of hiring a property manager is that they will have a stable of on-call tradespeople at all times of the year.
9. Don’t go it alone when it comes to ongoing management
Commercial property management is a complicated, high-pressure job. If you think you will save money by managing your own property, wait until you have your first problem tenant, or unreliable tradesman. Ongoing support will be key to your success.
10. Assemble your team
As well as a commercial property manager, you should also have a lawyer and an accountant on your team. These professionals will become more important to you as time goes by and your portfolio grows.
So there you have it – 10 important things to consider if you’re taking the plunge into commercial property. If you’d like some expert help with finding and managing a commercial investment property, contact our team.