Residential VS Commercial Real Estate...
Once upon a time, in Brisbane’s suburbs young married couples purchased their first house and often stayed in it for the next 50 years, rearing children, and generally living their lives. Oh yes, and it also happened to grow in value, as an added bonus. Then along came Brisbane’s property boom, starting slowly in the late 1980’s and gaining momentum in the early 1990’s. By the late 1990’s many people realized what a gold mine they were sitting on, and began investing in real estate, building a ‘portfolio’, and searching for the next hot spot. The property boom provided great fodder for dinner party chatter, and investing in real estate became almost a hobby. However, the smart investors have now begun to look further afield for their real estate investments, and they’ve found it – in commercial real estate. Once considered an area only for developers and large corporations, now more modest investors have found that this market can also offer them solid investments and great yields. Those entering the property market need to firstly consider what they want from their real estate investments, growth over the long term or immediate cash flow? Of course, both are preferable. While long term capital growth secures your financial future, it can be relatively unpredictable. Immediate cash flow however, is what will allow you to sleep soundly at night. The table below shows an initial investment of $250,000 invested into four different properties, two residential and two commercial. All four are properties presently on the market, and have been calculated at 7.25% over 25 years.
Obviously, the above does not take into account insurance or other outgoings for any of the properties. Commercial property is easily able to compete with residential property as a sound investment and often outdoes it. The growth seen in Red Hill over the last 12 months was only 6.3%, a meager amount compared with commercial property growth areas like Eagle Farm and Acacia Ridge. With commercial real estate, the return on invested capital, for finance purposes a minimum of 30% of the valuation price, ranges between 7% and 10% net after all costs. With residential properties, the owner pays all the outgoings and other costs. There are also considerable tax advantages for the commercial property investor, as the deductible rates are much higher. Leases are extremely long, ranging between three and 20 years. They are also quite often secured by bank guarantees providing excellent security for the property owner. Any residential property owner who has had to continually chase a new tenant every six months will know the value of a long lease. Commercial leases have built in clauses which benefit the property owner, for example, make good clauses, maintenance clauses, management clauses and all rates and insurance are paid. The rent is reviewed annually, with increases based on either the CPI or 4%, whichever provides the greater growth. Also making commercial real estate more attractive is that investors can enter the market for as little as $150,000. It would seem a very attractive option for young people newly entering the property market. However, in the freehold commercial market, it is difficult to find an opportunity for less than $1.2 million, and the strata title market price threshold is more usually around $300,000. Commercial tenants, in general, will also maintain the property in better order, as their business depends on it. With strong capital growth, long term tenancies and higher cash flow, the more one looks into commercial real estate, the more reasons can be found for investing in it over the usual residential properties. It certainly provides a lot of options for the eager investor willing to weigh up their opportunities. |
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Inside this edition you can read valuable articles on:
The second edition of Chase Commercial’s printed Platinum magazine will be in the marketplace as of late November. Platinum is a bi-annual publication targeted directly at corporate leaders, commercial property investors and developers, predominantly within the South East Queensland market. It is one of Queensland’s most targeted commercial property magazines. Platinum’s first edition was so successful it resulted in the gross sales of over $25 million of property, and the leasing of 10,000m² of floor space. Of the properties featured in the first edition,92% were sold or leased following the circulation of the magazine. The next Platinum will also feature a smattering of articles celebrating all that is great about our Queensland way of life. Platinum provides the perfect arena for you to lease or sell your commercial property, or advertise your business to the commercial property industry, however, space is very limited and fast running out. If you are interested in finding out more about advertising in Platinum magazine, contact your Chase Commercial Sales and Leasing Consultant. |
