Your investment strategy should determine whether you invest in residential or commercial property, or both
Both residential property and commercial property offer attractive investment opportunities.
Neither one is necessarily better than the other but there are important differences between the two and these should be taken into consideration when deciding what kind of investment is appropriate for your strategy.
Commercial tenancy or lease periods generally far exceed those commonly found in residential agreements.
While a residential tenant may sign for a six or 12 month period, a commercial tenant or ‘lessee’ will make their rental payments over a longer period of time, usually several years.
This offers a good sense of security around rental income, for those investors looking for certainty, and a ‘set-and-forget’ type arrangement. However, this may not suit investors looking for a more flexible investment strategy.
Secondly, a commercial lessee will generally be responsible for all maintenance costs, rates and repairs on the property, while the landlord of a residential property will usually be responsible for the property maintenance.
Being able to avoid maintenance costs can be a big drawcard for many investors. But this can mean less control over the overall property condition. In addition, commercial tenants have much more scope to alter commercial premises, which could be a problem for some investors but not others.
Financing your commercial investment
Perhaps the biggest difference and a hurdle for some investors interested in commercial property is that you will generally face a sizable deposit requirement.
Unlike the traditional 10-20 per cent deposit required for residential financing, most lenders will require a 30 per cent deposit before agreeing to finance a commercial investment.
A Choice Home Loans broker is best placed to assist you with financing. We can provide you with a wide variety of commercial loans from various lenders and tailor a product that meets your financial needs and investment strategy.
Making your move
There is no right or wrong investment choice and whether you decide to invest in residential or commercial property will depend on your own personal preferences and financial circumstances.
Consider your short and long term investment goals, in particular how long you are looking to hold on to the investment property, whether a short or long term lease arrangement suits you best and what your deposit situation is.
Commercial property can offer impressive returns, and investors in search of strong capital growth and long-term rental income might find the commercial market is the one for them.