Myth-Busting Commercial Property To Unlock Real Opportunities
On the fence about commercial property? Developer Michael Perry myth-busts common misconceptions holding wealth builders back from this lucrative investment sector.
Overlooked due to misconceptions about its potential as an investment vehicle, commercial property’s net returns make it too lucrative a sector to ignore for those serious about building independent wealth.
Fears around financing previously held investors back in the past, but more competitive options have now evolved to meet investor demand.
Vacancy can cause concern, however most commercial leases are more stable and for longer periods of 3, 5 and up to 10 years, with tenants placing real value on these spaces.
The secret lies in sourcing commercial property that remains in demand no matter what external market forces dictate: small flexible spaces that can be utilised for many purposes. A single space that can be used as a workshop, or a storage hub or an online business base depending on who the tenant is at the time.
These commercial properties often have far lower buy-in costs than residential, making them an attractive option for investors keen to get good, solid returns in growth areas.
Some of these big myths may have been holding you back from investing in this little-known market. It’s easier than you think to get $20k to $30k of cashflow a year with net yields of 5.5% or more from commercial properties, so let's bust those myths wide open:
Competitive finance in favour of commercial investors
With commercial finance previously only available at a 70% lend or less, many investors preferred to stick with residential but more competitive options have now emerged to meet growing investment demand.
Engaging a commercial broker is a must - don’t see a regular residential investment broker because this will be beyond the realm of their experience. We’re now working with brokers who will lend up to 80% LVR and sometimes 100% for borrowers using equity release from their own homes.
Depending on an individual’s financial situation, you can often get into commercial with no out of pocket expenses, a great proposition for those looking to get a foot on the ladder.
In recent years, the gap between commercial and residential interest rates has also narrowed, with current rates sitting at an exciting 4-5%. Combined with a high yield commercial property, these kinds of rates can set you up well for a positive cashflow situation.
When location counts: seeking growth areas
When you consider the drivers attracting investors to one particular area over another, commercial works in exactly the same way as residential.
You’re seeking growth not only within the next few years but into the long-term 10- 15yrs. Now that Sydney’s reached its peak, other areas within New South Wales are experiencing their own growth phases, in particular, the Central Coast and Illawarra.
This locality is still close enough to Sydney for those that need to be within proximity to work, family or other commitments, but far enough away to get them out of the city. Not only do these areas have good residential fundamentals, it’s attractive for the many businesses that are relocating to meet consumer needs.
Within the Central Coast region however, business demand has already outstripped supply illustrating how quickly investors need to move to capitalise on as much growth as possible.
Commercial property: think small, but with big returns
While the choice to invest in this area is clear, discovering the right kinds of commercial property to add to your portfolio isn’t as simple.
The Australian heavy manufacturing industry has become far more volatile in recent history. What’s not going away, however, are our key service businesses like tradesman - electricians, builders, online businesses and professionals like architects, engineers, financial planners and accountants who continue to evolve to meet market demand.
This new Australian economy has made evident the need for smaller, flexible spaces that can house a variety of tenants and ensure consistent rental demand, such as the Quantum Space development in Wyong. With buy-in costs starting under $100k for 30 square metres with a mezzanine for office or storage, investors are looking at impressive net returns of 5.5% from Day One. These units are versatile and space efficient. Depending on the tenant they can be used as an office, workshop or a storage hub.
They fill a much-needed gap in Australian commercial property that we need to see more and more of to meet our changing economy.
There seems to be little understanding of the commercial property investment sector despite the fact we’re interacting with it every day - plumbers, pool shops, gyms and yoga studios. They all need a space to operate out of.
What’s evident however is that you don’t have to go that big to get into commercial investment. Small spaces offer good net returns, positive cash flow and the kinds of growth opportunities every investor wants to see in their portfolios. It’s time to look past the myths and consider what commercial property can do to build your future wealth. After all, money in your pocket is what a good investment is all about.
Discover more about our flexible commercial property units in the Central Coast growth corridor. Click here for your free investor pack.