What You Need to Know When Buying Commercial Property

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There’s a lot to know about buying commercial property, and there’s also a lot at stake, with this being a riskier investment than residential. That’s why you need trusted commercial lawyers in Melbourne on your side. Read on to find out some key points about buying commercial property. 

What to Think About When Considering Commercial Property Investment

When you’re thinking of making an investment in commercial property, the first things you need to look at are the lease and the tenant. The most popular tenants are dubbed “blue chip”, because they’re the best quality and the lowest risk – usually corporate or government tenants. They are widely known as being less likely to stop paying rent. When considering a tenant, you want a company in a good location that’s doing business in a sector that bodes well for long-term growth. In an ideal world, when you go to buy commercial property, it will already have a tenant in it, signed to a long-term lease. If this isn’t the case, you need to ensure any vacant property has enough positive points to attract good tenants. Commercial lawyers in Melbourne can help you with any paperwork concerning the purchase of commercial real estate. 

How Commercial Property Investment is Different from Residential Property Investment

While they both have the word “property” in their names, these two kinds of investments are poles apart. From the lease lengths to the amount of risk involved, there are numerous differences between commercial and residential property investment. As a result, you need to approach these investments with a different mindset, which is where commercial lawyers in Melbourne can help. Usually, commercial lease lengths are a lot longer than residential ones, as it’s harder to find a new commercial tenant. There also tend to be greater lulls between tenancies in commercial properties, and add to this the economic vulnerabilities that commercial properties are in danger of experiencing, and it all adds up to more risk for the investor. However, this risk is balanced by the higher returns on commercial property investment. 

The Benefits of Commercial Property Investment 

  • Higher yields and greater cash flow – While yields between 3-4% are typical for residential properties, you can expect between 5% and 12% for their commercial cousins. This means more cash flow into your pocket.
  • Longer leases – Lengths of leases in commercial property may be anything from 3 years to 15 years, offering more stability than residential property, where the usual lease is 12 months. 
  • Annual rent increases – Usually, a commercial lease agreement will include fixed rental increases in it, with figures between 3-4% quite common, which is well ahead of inflation. 
  • Tenant pays outgoings – Net leases ensure that it’s the tenant who pays for most of or all of the property’s outgoings, such as council rates, insurance and land tax, etc. 
  • Diversification – Rather than having all your eggs in the nest of residential property, by spreading your wings into commercial property as well, you can diversify your investments. 
  • Tax-effective ownership opportunities – You can buy commercial property under the guise of many different kinds of entities, from companies to partnerships and trusts, and even as part of a self-managed super fund. You should talk to your commercial lawyers in Melbourne for more information on this topic. 
  • Different price points – there are a wide range of opportunities available when it comes to commercial property, all at different price points to suit various investment budgets.  

Summary

Before you get involved in commercial real estate, it pays to know the legal ins and outs so you can cross every “t” and dot every “I”. Consult with trusted commercial lawyers in Melbourne to get all the facts before you dive in.

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