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On this episode of The nestegg Podcast, host Maja Garaca Djurdjevic and three experts discuss the latest in equities, property investing and super.

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Steve Waters, director of Right Property Group, chats about the latest in property, including the much-talked-about use of macro-prudential measures to cool the rapidly expanding market.

RMIT’s senior lecturer of finance, Dr Angel Zhong, talks about soaring ETFs, what they are and why young investors, in particular, are jumping onboard their latest surge. Dr Zhong also takes a closer look at BNPL platforms.

And lastly, tax and super guru Timothy Munro gives his thoughts on Prime Minister Scott Morrison’s choice to backtrack on any further SG changes and looks at the impending end of the low and middle income tax offset.

Have a question for our experts? Get in touch at [email protected] and you might get featured on the next episode.

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Invest

Should you invest in commercial or residential real estate?

By David Hancock

April 24 2017
Share

Invest

Should you invest in commercial or residential real estate?

By David Hancock
April 24 2017

When investing in property, most people typically consider residential options, e.g. a unit or house. However, people are increasingly considering investing in commercial property as an alternative.

should invest commercial residential real estate

Should you invest in commercial or residential real estate?

By David Hancock

April 24 2017
Share

When investing in property, most people typically consider residential options, e.g. a unit or house. However, people are increasingly considering investing in commercial property as an alternative.

Commercial real estate is used either exclusively or primarily as a business premises. Commercial property has many similar attributes to residential:

Property values tend to fluctuate, and turnover is typically low
It pays a steady monthly rent while tenanted, and rents tend to increase as the economy grows
You might be able to depreciate some of the items within the property

However, commercial property has some key attributes that are vastly different to residential property, including:

Commercial property yields are often higher than residential yields in metropolitan areas
Commercial property lease terms are typically three years or more
Commercial property tenants are usually responsible for all maintenance of the premises
The ability to find a tenant for commercial property is industry specific, i.e. if you have a retail shop, your ability to find a tenant is influenced by the strength of the retail industry

So if with commercial property you can get higher returns, longer leases, and the tenants are responsible for maintaining the property, shouldn’t everyone be looking at buying commercial property? Not necessarily as it does come with a unique set of risk factors.

Tenant turnover can be very slow in commercial properties, so you need to be prepared with sufficient cash reserves to weather the slower periods. If you’re borrowing to invest, could you handle 12 months of vacancy of your property? Furthermore, when you’re investing into residential property, it doesn’t matter if you rent it to a doctor, tradesman, teacher or student – as long as they pay the rent and look after the property. But with commercial property, your rental income is intrinsically linked to the fortunes of the businesses that will want to rent your property. If you own a retail shop, it’s highly unlikely that it’s going to appeal to a non-retail business.

Overall, a great commercial property could be an excellent investment. But its attributes are very different to residential property. In some cases, commercial property returns can outstrip that of residential property, however that can come with an equally higher level of risk. As with any investment, do your homework and make it’s the best option for your individual investment strategy.

David Hancock, director, Binnari Property

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