Beginner’s guide to buying a commercial property for investment -Part 2 Types, returns and risks of investing in commercial property
Types of commercial property
There are three main types of commercial property these are: office, retail and industrial.
However, there are many other specific types. The type of property can be important from a finance perspective as banks and lenders do not like to finance some types of commercial property or may require you to contribute a larger deposit (so the loan to value ratio is low).
Returns from commercial property
Returns (% lease/rental yield) from commercial property are typically higher than that rental/lease % yield from residential property. This is because commercial property is considered as higher risk (than residential property) and this compensated with a higher return. Commercial yields vary and typically become depressed with capital gains (like residential property) but can be in the range of 6% to 10% compared to that of residential property that may range from 2% to 5% (as a general guide).
Risks of investing in commercial property
The higher risk associated with investing in property comes from two main sources. The risk of vacancy and the risk of not being able to sell it quickly. Unlike residential property in Australia’s major cities the vacancy rate of commercial property can be much longer. Commercial property can be more impacted by down turns in the economy, whereas people still need a place to live regardless of economic conditions.
Find the full guide here: Commercial property buyers - guide for investors
Back to part 1 - Introduction to commercial property investment
Continue to part 3
Are you interested getting commercial property finance?
Oak Laurel have commercial property finance specialists that can help make comparing and obtaining the right commercial property finance as easy as possible. Contact an one of Oak Laurel's commercial property mortgage brokers.
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