Become a Property Boss …
So you want to be a property investor?
But where to start? And what to buy?
When considering property investment most people choose residential – and there are plenty of good reasons why this is a sound decision.
There will always be a demand for housing. After all, people have to live somewhere.
Choosing the right location in an in-demand area is paramount but the rewards can be pronounced.
It’s all about the right house in the right location at the right time.
Building a portfolio can be incredibly rewarding and it’s made easier thanks to the plethora of lenders looking to throw their money at you.
A rising population should mean there is always someone looking to rent your property (provided you have made a sound investment purchase in an emerging area).
And the tax benefits and capital gains should make your decision all worthwhile.
But it’s not all a hotbed of roofs. There can be drawbacks to residential investment.
For starters, leases can be as short as three to six months and many tenants can be transient creatures, meaning you could find yourself scratching around looking for new ones while losing valuable rent money at the same time.
An interest rate rise may put many investors under duress if the option to increase rent to make up the shortfall is unavailable. If mortgage defaults are a result of this there is a potential for the value of your properties (and those surrounding it) to be affected.
But what about commercial property investment?
Generally speaking, leases on a commercial property (categorised as retail, office or industrial but which can also include mixed-use dwellings) will run for a number of years, providing the investor with more security than with residential.
In addition, commercial properties generally have higher yields of between five and 10 per cent as compared to residential properties, which average around four per cent.
Even better, if publicly listed, the tenant must pay the land tax on the property, on top of covering outgoings such as rates and insurance.
However, there are risks associated with commercial property investment, one of the biggest being the vacancy rate can be high.
Some properties languish empty for months or even years before a business takes on the premises and of these, viability of the business may also be a concern.
As many as 60 per cent of small businesses cease operating within the first three years of starting, according to the Australian Bureau of Statistics.
In addition, the state of the economy must also play a part in the health (or demise) of a business.
Commercial properties are much more expensive to buy than residential and the property’s value can be dependent on the quality of the tenant which means choosing the right business to lease the property is essential.
Lending conditions can also be harsher than residential with requirements for the buyer to stump up more of the cash up front.
Add to that capital growth can be low in some areas, so it is important to buy in established suburbs where land is at a premium.
So, no matter what you buy – commercial or residential – the bottom line is clear … location, location, location is the key to happy investing.
Contact us today to learn more about property investment opportunities.
