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Parramatta Blog
ADVANTAGES OF COMMERCIAL INVESTMENT RATHER THAN RESIDENTIAL INVESTMENT
Interest rates are escalating after a decade of declines, therefore new investors have been looking towards commercial investing to shield themselves from further increases. The benefits of commercial investing rather than residential investment are the uninterrupted cash flow, higher quality tenants resulting in extra income security, and guaranteed growth.
Dealing with commercial tenants is frequently far more predictable than dealing with residential tenants. For instance, the residential real estate market has inconsistent net income, largely due to owners being liable for outgoings and expenses as well as bearing the short term tenures of residential tenants ranging on average one to three years. When dealing with maintenance, commercial tenants in most cases cover these costs themselves, whereas residential tenants expect the landlords to handle expenses.
Commercial real estate can also give investors more income stability because of its higher-quality tenants. These reputable and frequently well-known tenants or businesses can include international fast food chains, daycare facilities, clinics, franchise firms, etc. Residential tenants often sign leases for six to twelve months, with landlords hoping they stay longer. Commercial tenants on the other hand sign agreements that are between three and five years long, plus option periods, guaranteeing the landlord longer-term financial security.
Rental income is closely related to the value of commercial property. Capital growth/equity is created by increasing annual rentals or adding additional income through value-added strategies. Scheduled rental increases are a key contributor when accumulating equity from commercial properties. These increases are often a fixed percentage (ie. 3%) or CPI increases, whichever the greater.
Investing in commercial property can mean significant rewards with high rental returns and longer tenancy periods. However, it can only be recommended after the necessary financial and legal advice has been pursued by the investor.
*Source: Scott, O’Neill. “Commercial investment potentially less risky than residential.” 12 June 2022
*Written by Jayden Ayoub | Commercial Sales & Leasing