Right – in that you are buying bricks and mortar, but that’s about where the similarities end.
Commercial property can include all types of property used for a business purpose – for example, office space, a warehouse, a workshop, a service station, a pub or a factory.
There is a whole lot more to consider when investing in commercial property - the terminology used is different, the returns can be higher, but the lows can also be lower (unless well-managed).
Ensure you have your team of trusted advisors surrounding you before making any decision to invest – in commercial real estate, or any investment for that matter.
Some of the major differences between commercial and residential real estate investing to be aware of are as follows:
Banks will typically only lend up to 60-70% of the value of the commercial property – unless you plan to occupy it yourself and fall within certain categories of businesses – such as veterinary, medical types etc. Speak to your banker here for more information.
A tenant or “lessee” will likely have a lease over the property for anywhere from 1-10 years. This obviously provides a whole lot more certainty to your investment cashflow. However, there can also be much longer periods of vacancy as finding a suitable tenant to lease the property can take some time.
Expenses such as rates, water, insurance for the property can typically be passed onto the lessee and paid by them as part of “outgoings” – meaning the expenses for the ongoing operation of the property (check the conditions of the leases to fully understand whether or not these costs can be passed on).
The lessee can make changes to the property to make it suit their business. This can include putting in walls, a new kitchen. This process is called the “fit-out”. Generally the terms of any commercial lease though will require the lessee to return the property to its original condition at the end of the lease – unless you agree for some of the fit out to remain, for example, if it can be used by any new tenant (which can potentially add value to your premises).
You may need to pay GST on the purchase price, the rent received and any expenses for the property. Speak to your accountant for more information here, particularly before making an offer on a commercial property – as you may need to find an additional 10% of your offer to cover the GST amount on the purchase price, if applicable.
If you have any questions about commercial property, or would like to chat generally about commercial property investing, feel free to reach out – firstname.lastname@example.org.
Jordan Miller is the founder and director of Explore Property Commercial, which operates throughout regional Queensland with a particular focus on Mackay. Jordan is a specialist in commercial sales, leasing and property management. He has a particular focus on specialised commercial, industrial and medical/allied health properties. He has studied a Bachelor of Business Management (Real Estate and Development) at the University of Queensland, is a Certified Practising Valuer, an Associate Member of the Australian Property Institute and a Licenced Real Estate Agent. Jordan has developed an outstanding reputation in the property sector over the past 13 years. Jordan is trusted by institutional investors and locals alike to provide quality and honest property advice, with a view to achieving the best outcome for his clients.