Professional Advice by Adam Grbcic, Ray White Broadbeach
Commercial real estate is a broad term describing real property used to generate a profit. Examples of commercial real estate include: office buildings, industrial property, medical centres, hotels, malls, warehouses, etc. Historically, investing in commercial real estate as an alternative asset has provided millions of investors with attractive risk-adjusted returns and portfolio diversification.
If you are looking to invest in commercial property, here is some essential advice to help get you started. From choosing the right sector and the difference between net and gross income to the ideal yield of a commercial property, these are the tips that can often be the difference between success and failure.
3 Beginner Tips for Commercial Property Buyers
- Choose a Sector – My recommendation for that would be industrial. The reasoning for that is: that with industrial properties there is very little that can happen to the internal, there is very little fit out that it will require and the turnover of tenants is shorter than any other sector.
- Look at The Lease Terms – Rather than look at the total lease tenor, look instead at the tenor remaining because that is what is important to you.
- Choose an Area You Are Familiar With – It is essential that you choose an area that you are familiar with and that you have done your research on.
The Difference Between Net and Gross Income & Why It’s Important to Know
A net income is the income received after all expenses. Expenses being your rates, water, body corporate (if applicable) and insurance. These are referred to as your outgoings. Depending on how the lease is structured, a gross income is the income collected that doesn’t take into consideration the outgoings.
You look at your income less any expense, which will give you your net income. This is the figure you need to be looking at. This will give you a clear understanding of what your costs are and your returns are, in order to know clearly what your property is yielding.
The Ideal Yield a Commercial Property Purchaser Should Look to Achieve
As a purchaser, the higher the yield the better. In reality, the yields that are currently being achieved are anywhere between six and eight percent. The way that the purchaser should be looking at this is: if you are lending at a certain rate, with the understanding that with commercial you are looking for an income producing property, you want to ensure that your property is returning at a higher rate than what you are borrowing at. The difference between those numbers is your income.
Investing in real estate is a great way to build wealth. Commercial real estate investing, in particular, is known to provide some of the highest income streams. If done right, renting out commercial properties will reliably bring in higher annual returns than many other investments. So, if you’re looking for a way to grow your portfolio, investing in commercial property could be the decision that helps you achieve your dream of financial freedom.