When it comes to property investment the question, “Is it better to invest in residential or commercial property?” is a topic that divides investors.
Some say investing in residential property is less risky but others believe commercial is safer due to the potential cash flow. Researching both options to see what fits with your portfolio is the way smart investors tackle this question.
Benefits to Commercial Investing
Higher Return on Investment
It’s not uncommon to get a return between 5% and 12% gross rental yield for commercial properties, compared to residential properties averaging approximately 3% to 4%. This is because commercial properties need to offer high enough yields to encourage investors to willingly take on the higher risks.
Commercial leases can be anywhere between 3 and 10 years with tenants investing in their premises whereas residential can change every 6 to 12 months.
No rates & outgoings
In the world of commercial property, it’s more common for tenants to sign net leases than gross leases. Meaning Commercial tenants are responsible for outgoings such as council rates, water and body corporate not the landlord.
Commercial properties are generally lower priced compared to residential properties so you need a smaller capital outlay. For example, a car park can cost as little as $80,000 as opposed to $400,000 for a small bed-sitter. Investing in commercial property could be a great way to get into the market sooner compared to saving for a residential property investment.