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Commercial Property – a Good or Bad Investment?

Posted on August 2, 2019
by Phil Grant in Accounting, Business Advisory Services & BUSINESS Blogs

There is always a lot of conversation and discussion over residential property. Topics like where the market is, where it’s going, if it’s a good time to sell, stories of missed opportunities to name a few. What isn’t discussed nearly as much is the subject of commercial property. The reason is simply because the residential property market is bigger – there are more people than businesses.

But the question businesses should be asking is whether buying commercial property is a good investment? This can be a difficult decision to make with limited information available. So here let’s go through the pros and cons of purchasing commercial property.

Pros

  • Gross rental yields are usually much higher than residential property, averaging 7-8% compared to residential property gross yield of 3-4.5%
  • Lease terms are generally longer than residential properties which provides security for tenancy and financing purposes
  • Interest rates are very low at the moment which keeps the financing costs of the property down
  • If the commercial property is to be used to run your business you may be able to access small business Capital Gains Tax concessions upon a sale or transfer of the property
  • A commercial property may be owned by your SMSF which can provide you with both short term and long term benefits

Cons

  • Generally it is harder to find tenants for a commercial property than a residential property
  • The value of the property generally doesn’t appreciate over a period of time like residential property
  • Finance to purchase a commercial property is generally more difficult to obtain than a residential property
  • The option period within a commercial property lease is at the discretion of the tenant

So is commercial property a good investment? Well I can’t say yes or no for you because every person’s situation and business is different and every property is different. However if you think about your own circumstances and run through the pros and cons like those outlined above, then I’m sure you’ll come up with the right answer for you.

If you have any questions and would like to discuss your business situation, please get in touch with our team at BLG Business Advisers online or by calling 02 4229 2211.

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