The pros of commercial property investment

Commercial property investing can offer significant cash flow benefits. Some commercial properties offer rental returns of more than 8 per cent, compared to the current median rental yield across the combined capital cities of 3.32 per cent (based on CoreLogic data). What’s more, commercial properties usually offer greater rental certainty due to the long-term nature of leases. Commercial leases often run for between three and 10 years, and agreements usually contain a term for set rental increases in line with inflation.

With commercial properties, there are also fewer ongoing expenses involved. Tenants usually cover most maintenance, rates, insurance and body corporate fees, unlike with a residential property, where the owner foots the bills. Another perk is that if the tenant puts in a new fit-out at their own expense, the improvements may increase the value of your property without it costing you a cent.

The cons of commercial property investment

It can sometimes be difficult to find new tenants for commercial properties, so as an owner, it’s important to be prepared to cover the expenses if the property is untenanted for an extended period.

Economic factors can also heavily impact on the health of a commercial property investment. For example, economic downturns, high unemployment or poor business confidence could affect demand. That being said, research and choosing the right commercial property in the right location can usually mitigate these risks, just like with residential property.

What should you research? As with any property purchase, research is key to finding the right investment opportunity. Be sure to research local prices and market conditions, any council restrictions or zoning regulations that could affect your investment, and upcoming infrastructure developments.

In terms of location, think about the property attributes your tenant might desire. Is it in close proximity to transport hubs? Car parking? Perhaps it’s close to other complimentary businesses? Always remember the rules of supply and demand – it’s best to make sure there isn’t an oversupply of similar properties in the neighbourhood.

What are the benefits of choosing an office for first-time commercial property investors?

Office buildings may offer a less daunting entry point into commercial property investing for first-timers because of the strong demand at present. According to the Colliers International Office Demand Index (Quarter Four, 2017), Australia’s major office markets are set for a strong start to 2018, on the back of increased demand and activity in 2017.

Colliers measures demand in terms of demand and supply per square meter. In the final quarter of last year, office property markets nationally recorded a 19 per cent year-on-year increase in enquiries (demand), from 415,737sqm in the last quarter of 2016, to 492,947sqm in the final quarter of 2017. Increases were seen across all segments of the market and overall, there were 942 deals for 785,252sqm of office space in 2017. Ask us for a copy of the report if you are interested!

For some investors, buying commercial property such as an office can be a sound investment strategy. If you already own residential investments, expanding into commercial property investment may allow you to diversify your portfolio and generate an attractive income. If you’d like to find out more about your finance options, please speak to us. Commercial property finance can be more complex than residential finance, but we can walk you through the process and find a commercial property loan that ties in with your unique financial circumstances and goals. Contact your Element Finance mortgage broker in Joondalup and Fremantle if you need support. We’d love to hear from you.

Capital growth potential 

Capital growth is the increase in value of a property over a period of time. Investors use a range of strategies to build wealth, and looking for the properties that are most likely to experience significant capital growth, is often high on their radar.

So, how do you find an investment property with solid capital growth potential? Look for locations and suburbs experiencing economic growth. Economic growth creates jobs, which brings more people to an area, which may flow through to the property market via increased demand for housing. Greater demand means more chance of capital growth.

Next, be sure to choose an investment property that is close to amenities such as schools, shopping centres and public transport – when an area is experiencing economic growth, these properties will be in the most demand.

Rental returns

Some investors choose to focus on properties with a high rental yield, rather than just looking at capital growth potential. The rental yield is the rate of income return compared to the costs associated with the investment property. It’s typically expressed as a percentage, and may be calculated as a gross or net figure.

Investors who are following a rental yield strategy will typically look for areas where rents are high compared to the property value. Talk to us as we have access to have access to exclusive property tools to help you locate a suitable area.

Low maintenance costs

As an investor, it’s wise to opt for a low-maintenance property. They not only cost less to keep, but they’re less hassle too. Units can be easier and cheaper to maintain than old houses for example, but keep in mind you’ll most likely have to pay body corporate fees.

Ways to add value 

When choosing an investment property, ask yourself whether there is room for improvement, or ways to add value. You might not renovate it right away, but when you do, be sure to do plenty of research to find out what’s in high demand. Ask your local real estate agents what kinds of property features resonate well with tenants and future buyers in the area.

Choosing the right investment property requires careful research and planning. Luckily, one area you don’t have to worry about is finding the right investment loan for your specific needs. We can take care of finding you a loan product that matches your financial circumstances, while working with your investment goals. Please call us today!

Interest Rate News

Thankfully, there was no pre-Christmas surprise this month from the Reserve Bank of Australia. The board decided to leave the cash rate on hold at 1.5 per cent. The central bank’s board will next meet in February 2018.

Property Market News

On the whole, national dwelling values were largely steady in November. Again, Melbourne seems to be proving more resilient than Sydney, with dwelling values up 0.52%. In contrast, Sydney’s housing market saw prices fall -0.72% in November. Canberra’s dwelling values rose by 0.86%, while Hobart experienced 0.64% growth. Things are looking up for property owners in Perth, where values rose by 0.21% in November. The city recorded the first rolling quarterly capital gain since late 2014 (up 0.3% in the three months to November). In Brisbane and Adelaide, there was less fluctuation (0.07% and 0.01% growth respectively). Darwin, like Sydney, experienced a fall in property values – the month-on-month change was -0.42%.

In the week ending December 3, there were 3,276 auctions held across the combined capital cities. According to CoreLogic, the preliminary clearance rate was 63.5% – up from the previous week’s clearance rate of 61.6%. Auction volumes remain in line with last year’s figures, but this time last year the clearance rate was much higher, at 72.3%.

Melbourne and Sydney’s clearance rates picked up compared to previous weeks. In Victoria, there were 1,800 scheduled auctions and a clearance rate of 67%. New South Wales held 1344 scheduled actions and cleared 62% of the stock. Meanwhile, the ACT had the highest clearance rate – 76% on 105 scheduled auctions. Tasmania only held 11 auctions and cleared 67% of stock, while South Australia had 148 scheduled auctions and 65% of properties sold. In Western Australia, 61 properties went to auction and 46% went under the hammer. Queensland held 395 auctions and the Northern Territory had 17. Both had clearance rates of 36%.

As the sun sets on 2017, we’d like to take the opportunity to wish you a safe and happy festive season. Remember, now is a great time to purchase a new property for the New Year, or to re-evaluate your mortgage. If you’d like advice about finding a mortgage that suits your financial circumstances and plans, we’d love to help! We’ll do the hard yards for you, so that you can concentrate on the fun stuff this summer, like playing beach cricket and being with the family. Here’s to an exciting 2018 – hopefully one that includes an exciting new property purchase! 

Objection 1: “I don’t have a big enough deposit”

If you’ve been working hard to save a deposit and feel like it’s never going to be big enough, we have some exciting news for you! Size doesn’t always matter, especially not in this scenario. Being approved for a home loan is not necessarily dependant on how much of a deposit you have, but rather your capacity to repay the mortgage. There are all sorts of options available to aspiring homeowners who don’t have a 20% deposit.

Some lenders still offer home loans for up to 95% of the purchase price. The borrowing criteria can be more stringent than other types of loans, but if you have a clear credit history, stable employment, a solid income, minimal debt and are in a good asset position, you may qualify. Most home loan providers will want to see evidence you’ve saved at least 5% of the purchase price, and you may have to pay Lenders’ Mortgage Insurance with this type of loan – but you’ll have your foot on the property ladder! Speak to us to find out whether this kind of loan could work for you.

Another way to get a foot on the property ladder could be to ask your parents or a family member to be your guarantor. This is when they use the equity in their property as security for your loan. The right time to buy your first home is as soon as you can afford to do so!

Objection 2: “I think the market will downturn”

Whilst the property market does go up and down in cycles, “timing the market” is not as important as “time IN the market”. The sooner you buy a property, the sooner it will be possible for it to start to experience capital growth (which is the term we use to describe how much your property goes up in value whilst you own it).

There is always a possibility that your property will go down in value after you purchase it. However, you need to remember it has only gone down in value ‘on paper’ – you won’t actually lose any money unless you sell it. Market fluctuations are common and it is likely it will have recovered in value by the time you want to sell.

Choosing the right home in the right location can help protect against property market fluctuations and improve your chances of long-term capital growth. When you locate a property you’re interested in buying, we can help you check its capital growth potential with a free property market report – so please ask us.

Objection 3: “I can’t afford a home where I would want to live”

Most people don’t get to buy their dream home the first time around – it’s a goal you can work towards once you get on the property ladder. If you can’t afford to buy your dream home in your preferred location, you could look for something in another location, consider a smaller property that’s more affordable, or opt for a fixer-upper that has potential but just needs a little love. Another option that’s becoming increasingly popular is to rent-vest – rent where you want to live and buy an investment property somewhere else. That way, you can grow your nest egg to enable you to eventually buy the home you want.

There’s no time like the present to chat with us about your plans and finance options. Please get in touch and we’ll explain your borrowing capacity, home loan options and help you get pre-approval on your loan so you can start looking for a property to buy sooner. 

1) Go it alone, or use a property manager?

When you’re a new landlord, managing your own property could have a steep learning curve. Working with a good property manager will not only teach you the ropes, but they’ll do all the hard work for you – like finding tenants, lodging bond forms, collecting rent, doing inspections and making sure things run smoothly. If there are any issues, the tenant will contact them directly, which could save you a lot of hassle. They’ll also keep you informed of your rights and responsibilities, giving you peace of mind that you’re doing things right.

Before choosing a property manager, be sure to check their online reviews or ask them if you can reference check their other clients. Otherwise, ask us! We are well connected and are more than happy to provide a referral to any reputable local suppliers that we may know. Property management costs are usually tax deductible for property investors, so also check it out with your accountant.

2) Familiarise yourself with the legislation

As a new landlord, it’s important to know your rights and responsibilities and adhere to the relevant legislation in your state or territory, even if you use a property manager. For example, in some states, you must provide tenants with a new tenant checklist before they sign the tenancy agreement, and you can be fined for not complying. You can find helpful information about each state and territory’s specific requirements on the TenancyCheck.com.au website, available here. Be sure to also check with your state or territory’s relevant government department.

If you have a Property Manager, it’s their job to help you understand the legalities, so if you’re not sure, ask them to fill you in!

3) Understand the importance of the bond

The bond is a security deposit that protects you if the tenant damages the property, leaves it unclean, or fails to pay rent or bills that fall under their obligation. In these instances, you or your agent may be able to claim the bond money to cover your expenses at the end of their tenancy. The bond is usually about four weeks’ rent, but in some instances, it may be more.

Once the bond is collected, you must provide the tenant with a receipt and lodge the money with your state or territory’s residential tenancies authority (known by different names in each state/ territory). Be sure to check with your local authority about how soon the money must be lodged. This authority will hold on to the bond until the tenancy is up and pay it back to the tenant when the property is vacated, provided there’s no money owing for damages, unpaid rent or other costs. If there is a dispute about the bond or you want to claim compensation for damage that exceeds the bond, you can apply to the relevant tribunal within your state or territory.

Buying an investment property is exciting and rewarding. If you’re not confident about going it alone, you can rest assured that there are professionals out there to help make sure things run smoothly. In terms of finance, we’re here to help you find a loan that meets your current financial needs and ties in with your future investment goals. We’ll compare the market and set you up with a loan that ticks all of your boxes, so please get in touch today!