The braver investors among us have fantasised about diversifying their portfolio to include not only residential investment cashflow but also commercial. However, making the step into the commercial investment property market can be a formidable one and one that must be well informed. For the average investor, this may not be possible due to the high deposits and commercial loan interest rates involved, as well as the knowledge gap between residential and commercial investing. Nonetheless, there exist tremendous opportunities to increase your investment portfolio cashflow if the informed investor expands into the commercial arena.
Goose discuses the pros and cons of commercial investing, compared with residential, to get you started in this potentially lucrative investment avenue.
- Commercial investing outperforms residential for rental yield and offers longer leases
- Issues with commercial investing include
- Uncertainty finding a good commercial property
- Higher required deposit
- Lending terms usually include a higher interest rate (reflecting higher risk)
- Longer wait time to secure a commercial loan
- Vacancy rates can be much longer than residential (industry and location dependent)
- Residential: investing in people
- Commercial: investing in the longevity of a business
- Impact of online shopping on the long-term viability of a commercial asset
- Tenants have a vested interest in maintaining the commercial property
- Residential investing is about equity, commercial is about cashflow
“If Your Only Tool Is a Hammer Then Every Problem Looks Like a Nail”― Mark Twain (among others)