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Property Newsletter – July 2016
July 7, 2016 | 
Author Property Finance Strategies: Webinar
Did you miss our recent webinar on the best property finance strategies for investors? Don’t worry, you can still listen to the recording here.
Momentum Wealth recently launched our Foundation Series Webinars, which are free, bite-sized sessions of practical and relevant strategies to help investors make smarter, more informed decisions to build their wealth through property.
The first webinar in the series, Property Finance Strategies – Maximising your Opportunities, was held on Thursday, June 23.
The webinar provided listeners with some of the best finance techniques and structures to optimise their property portfolios.
The webinar included:
- Key finance strategies for property investors: looking beyond interest rates
- Understanding lending criteria: how to use it to your advantage
- Cross collateralisation: what every property investor should know
- If you missed the webinar, simply follow this link where you can listen to the session at your leisure.
Keep an eye out for the next session in our Foundation Series Webinars later in 2016.
Capital growth vs cash flow – what’s better?
It’s a common question among property investors; what’s better, capital growth or cash flow?
Generally speaking, there are 2 models of property investment that are available to investors.
- To buy properties that will increase in price above market rates of return (i.e. high capital gains)
- To buy properties that offer rental returns above market rates of return (i.e. high cash flow)
In residential property investment, it’s not often that you’ll find properties that offer high levels of both capital gains and cash flow. Generally properties with high growth expectations come with lower rental yields.
Therefore, investors will need to focus on properties that provide one over the other.
What’s the better option, capital growth or cash flow?
It all depends on your current circumstances, but there are a few considerations to take into account to know where you fit.
Do you want to increase your personal wealth, or do you want a source of income?
If you want to significantly grow your personal wealth, then you should choose a capital growth strategy.
As a general rule of thumb, capital growth is best for investors aged between 20 and 60, who are still accumulating their wealth.
Buying high growth properties will allow these investors to capture the benefits of compound growth as their properties rise in value and amass significant personal wealth.
As you near retirement, you should‘ve created the wealth required to live the type of lifestyle you want.
However, you’ll also require a source of income if you’re no longer working.
This is when a cash flow strategy is necessary as investors can utilise the rental returns as a means of passive income.
It’s important that investors work with a property investment advisor who can advise you on the most suitable properties for your own circumstances and stage of life.
Water connections fees slashed for developers
Investors developing property in Western Australia have been handed a welcomed gift with the cost of water connection being slashed by nearly half.
Under the changes, the state’s water supplier, Water Corporation, will reduce charges applied to providing water to new developments or subdivisions by 47%.
For a standard lot, the cost would be reduced from $4,064 to $2,150 per lot – a saving of approximately $1,914.
The reduction is great news for all property investors with the impost being a considerable cost, particularly on smaller developers.
The savings has been slightly offset, however, with wastewater charges to increase by 71%, from $1,363 to $2,334 – an additional $971.
The changes, which took effect on July 1, 2016, were foreshadowed in the 2016/17 State Budget which was released in May.
The changes reflect a reduction in costs incurred by the Water Corporation, which has been working closely with industry to reach the outcome.
5 tips to manage a rent reduction
Ebbs and flows are a natural part of any property market, but how do you manage a rent reduction when forced to find a new tenant in a downturn?
When the market cools and you need to find a new tenant, more often than not the only way to lease your investment property will be to reduce the rent.
While no investor wants to lower their rent, it’s best to be realistic otherwise you may face much larger consequences.
Here are 5 tips to help manage a rent reduction.
- Take a long-term view. While rental income is needed to service your debts, the main goal of property investment, for most, is capital gains. Typically, a drop in rent won’t make a big difference to your wealth goals over the long term.
- Don’t chase the market down. If you price your property too high at the start, the market may drop further and then you’ll need to lower your price even more. It’s best to be realistic up front when you are leasing.
- Think about the bigger picture. If you refuse to adjust your rent to the market conditions, you’re more likely to lose more money through a longer vacancy period. By adjusting your rent appropriately, you should lease the property much faster.
- Put a rent reduction into context. If interest rates have dropped in line with property market conditions, you’re likely to be paying less on your loan, so a lower rent may not hurt your hip pocket as much as it may seem.
- Utilise your cash buffers. Investors should have adequate cash buffers that they can access to service their loans when their properties are vacant. Ideally, investors should have enough funds to service their debts for at least 2 months.
If you’re a relatively new property investor and only ever seen your rents rise, then accepting a rent cut can be a bitter pill to swallow.
However, seasoned investors will know that ebbs and flows are a normal part of property and it’s best to adjust rental prices accordingly and wait for the next upswing in the market.
Suburb Snapshot: Warwick
Recently being rezoned to accommodate higher density housing, Warwick boasts good access to the Joondalup train line, great amenities and is in close proximity to the Perth CBD.
Located in the City of Joondalup, Warwick is 13 kilometres northwest of the Perth city centre and has a population of about 3,800 with a median age of 42 years.
More than 81% of properties are either fully owned or being purchased with just 15.5% of properties being rented.
One of the suburb’s main features is its access to Warwick train station on the Joondalup train line as well as the main arterial roads, Mitchell Freeway, Warwick Road and Wanneroo Road.
Until recently the suburb was zoned mostly low density residential R20. However, under the City of Joondalup Local Housing Strategy, significant areas of the suburb have been rezoned to medium density with land around Warwick train station and Warwick Grove Shopping Centre being rezoned R20/60 and R20/40.
The suburb is dominated by stand-alone dwellings with houses making up 91% of stock in the suburb, followed by 4% duplex, villas and townhouses and 5% flats, units and apartments.
With the introduction of higher R-codes, this composition will start to change, however, as older stock is replaced with medium density dwellings.
Residents can enjoy significant parklands with the large Warwick Open Space to the east of the suburb, as well as Hawker Park and Ellersdale Reserve.
Both Hawker Park Primary School and Warwick Senior High School are located within the suburb as well.
Of Warwick’s population, about 23% of people employed over the age of 15 identify as professionals (WA average is 19.9%) while clerical and administrative workers make up 16.9% of the residents and 15.5% are technicians and trade workers.
Show me the money!
Residential development syndicates can be a lucrative investment. But how long does it take to receive returns from a syndicate?
No doubt you’ll be aware that syndicates can be a great investment to create significant wealth in a short period of time.
So how long does it take to receive my returns once I’ve invested in a residential development syndicate?
The answer will be dependent upon two main factors – the company overseeing the syndicate and the size of the development.
At Momentum Wealth, we typically offer syndicates that complete boutique apartment developments, which can be classified as complexes of 50 units or less.
These types of developments provide a more niche product in the market and generally carry less risk than much larger projects that comprise hundreds of apartments.
One of the key criteria we seek to meet when completing residential development syndicates is to return investors’ distributions as quickly as possible.
For our boutique apartment developments, we typically provide a timeframe of around 30 – 36 months in which investors will receive their returns. That is, from when an investor initially commits their funds through to planning, development and sales. However, this varies from syndicate to syndicate.
It’s important to do your research before committing to a syndicate to ensure the company is capable of executing exactly what they’re promising. Do they have a good track record of delivering such projects and have they stuck to budgets and timeframes in previous syndicates?
By failing to complete adequate research you may be left waiting longer than expected for your returns, or worse, you may not receive them at all.
Case Study: Overseas buyer mandates tight deadline
Part of the benefit of engaging a good commercial property buyer’s agent is their ability to foresee and address challenges before they arise.
This was particularly evident in a recent deal for an overseas client that contacted us to find him an industrial property in the Perth metropolitan area.
The client, an English-born Australian resident living in Qatar, provided a specific mandate to our consultants for a small industrial property for private use that comprised:
– Highest possible trusses – Sea container access – The ability for light fabrication – 180-200sqm in size – General industrial zoning – Located in the northern industrial belt – Under $400,000 +GST
The client also had one more directive – he needed to secure the property in just 4 weeks’ time.
With this criteria and the looming deadline in mind, our consultants launched a short 2-week request for proposal campaign and liaised with their extensive network of commercial selling agents, property managers and fund managers.
At the end of the campaign, our consultants compiled a shortlist of potential properties, which we inspected, appraised and provided a detailed price comparison guide before recommending a premise in Malaga, about 13 kilometres north of the Perth CBD.
With the client happy to proceed with the acquisition, our consultants were on a tight deadline to negotiate the deal, and to make matters more challenging settlement was likely to fall in a key holiday period, which may have delayed proceedings.
We also liaised with the selling agent and the vendor to confirm they were organised for a quick settlement and managed the client across 3 time zones so he was prepared to travel to the Australian consulate in Dubai to submit the necessary paperwork on time.
With the lender’s valuation coming in as expected, the client’s finance was approved and settlement proceeded.
After the vendor placed the property on the market for $395,000 +GST, we were able to secure the premise for $365,000 +GST and get the deal across the line.
Needless to say, our client was extremely happy with the outcome, particularly given the tight deadline.
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Finance Newsletter – July 2016
Interest rates drop!
Do you have the best rate available for your home and investment loans?
You may have noticed a Difference between home loan and investment loan rates? You might be able to save thousands per year in interest by reassessing your current loans. It costs nothing to find out.
If your interest rate is over 3.84% variable then you may be able to save by changing loans and or banks. I have access to a major bank that is currently offering customers a 3.84% variable rate .This NOT a honeymoon rate, discount is for the life of the loan. Conditions apply – owner occupied homes, principal and interest payments, minimum loan $500 000, 80% LVR maximum – includes redraw facility. No application, monthly, valuation or annual fees. If you are interested in saving thousands per year call Mercia finance to see if we can show you how to benefit from a better rate.
Investors will have read that most banks are increasing the rate on investment loans. This includes current investment loans. If you are a property investor check your rates and find out if these increases apply to you. If you are not sure Ask Mercia finance for an obligation free loan check. Some institutions are not increasing the rates for investors. So this is a good time to make sure you have the best loan for your circumstances.
If you have questions regarding any type of loan, call Dan Goodridge on 04144 233 40. Our service is free of charge to you the borrower and we have access to all the major lenders in WA. Call us anytime. After hours is OK.
Taxation Newsletter – July 2016
Tax Time 2016: take care with work and rental property claims
The ATO encourages people to check which work and rental property-related expenses they are entitled to claim this tax time, and to understand what records they need to keep.
Assistant Commissioner Graham Whyte has reminded taxpayers that there has been a change in the rules for calculating car expenses this year, and people need to use a logbook or the cents-per-kilometre method to support their claims.
“It’s important to remember that you can only claim a deduction for work-related car expenses if you use your own car in the course of performing your job as an employee”, Mr Whyte said.
The ATO will pay extra attention to people whose deduction claims are higher than expected, in particular those claiming car expenses (including for transporting bulky tools), and deductions for travel; internet and mobile phones; and self-education. Mr Whyte also noted that “the ATO will take a closer look at any unusual deductions and contact employers to validate these claims”.
The ATO also encourages rental property owners to better understand their obligations and get their claims right. Mr Whyte said the ATO would pay close attention to excessive interest expense claims and incorrect apportionment of rental income and expenses between owners. “We are also looking at holiday homes that are not genuinely available for rent and incorrect claims for newly purchased rental properties”, Mr Whyte said.
TIP: The ATO says advances in technology and data-matching have enhanced its ability to cross-check the legitimacy of various claims.
The ATO also reminds people engaged in the share economy (eg ride-sourcing) to include income and deductions from those enterprises in their tax returns.
TIP: Ride-sourcing drivers are likely to be carrying on a business and be eligible for deductions and concessions in their tax returns. This could include depreciation deductions and GST input credits.
SMSF borrowing arm’s-length terms deadline extended
The ATO has extended until 31 January 2017 the deadline for trustees of self managed super funds (SMSFs) to ensure that any related-party limited recourse borrowing arrangements (LRBAs) are on terms consistent with an arm’s-length dealing. The ATO had previously announced a grace period whereby it would not select an SMSF for review for the 2014–2015 year or earlier years, provided that arm’s-length terms for LRBAs were implemented by 30 June 2016 (or non-compliant LRBAs were brought to an end before that date).
The deadline extension to 31 January 2017 follows the ATO’s release of Practical Compliance Guideline PCG 2016/5, which sets out “safe harbour” terms for LRBAs. If an LRBA is structured in accordance with PCG 2016/5, the ATO will accept that the LRBA is consistent with an arm’s-length dealing and the non-arm’s length income (NALI) rules (47% tax) will not apply.
TIP:The ATO requires arm’s-length payments of principal and interest for the year ended 30 June 2016 to be made under LRBA terms consistent with an arm’s-length dealing by 31 January 2017.
Lifetime $500,000 non-concessional superannuation cap
As announced in the 2016–2017 Federal Budget, the Government has proposed a lifetime non-concessional superannuation contributions cap of $500,000 to apply
from Budget night (3 May 2016). This means that people who are planning to make non-concessional contributions now need to check their historical non-concessional contributions data back to 1 July 2007 (which will be counted against the $500,000 lifetime limit). To this end, the ATO can calculate non-concessional contribution amounts for the period 1 July 2007 to 30 June 2015, provided that the individuals and funds have met their lodgment obligations.
TIP: The ATO can only calculate the amount of non-concessional contributions based on the information it has. It may be prudent to review your own history of contributions. Please contact our office for further information.
ATO clearance certificates for property disposals
A new foreign resident capital gains withholding tax regime has been introduced. The new rules will apply where real property contracts are entered into on or after 1 July 2016, but will only apply to sales of residential property where it has a market value of $2 million or more. Where the new rules apply, the transaction will incur a 10% non-final withholding amount at settlement.
Withholding does not apply to sales by Australian resident sellers, but these sellers will need to obtain a clearance certificate from the ATO and provide it to the purchaser. Note that Australian resident vendors will need to obtain this clearance certificate before settlement to ensure they do not incur the 10% non-final withholding amount. Vendors can also apply for a variation if they are not entitled to a clearance certificate, if a vendor’s declaration is not appropriate or if 10% withholding is too high compared to the actual Australian tax liability on the sale of the asset.
TIP: The ATO has talked to real estate agents, conveyancers and legal practitioners to ensure the industry is prepared to help its clients meet their withholding obligations.
Hotel owner liable to GST for accommodation supply
A hotel owner has been unsuccessful before the Administrative Appeals Tribunal (AAT) in seeking a GST refund of $476,610.
The hotel owner had a management agreement with a hotel operator. Under the agreement, the operator was to “act solely as the agent” for the owner. The ATO ruled that the owner was making a taxable supply of accommodation in commercial residential premises for the purposes of the GST Act. The owner objected, arguing that it had incorrectly accounted for GST.
The AAT said the only issue it was required to determine was whether the supply of accommodation in the hotel by the owner was correctly described as a supply of accommodation in commercial residential premises, provided to an individual by the entity that owns or controls the commercial residential premises. If it was so, then the hotel owner could not claim that the supply was input taxed under the GST law.
The AAT concluded that the supply in this case was made by the hotel owner through its agent, the operator. Accordingly, the AAT affirmed the Commissioner’s decision that GST was payable on the supply of the accommodation.
ATO to make new decision on superannuation death benefit
The Administrative Appeals Tribunal (AAT) has ordered the Commissioner to request that a couple make an application for another private ruling in relation to a life insurance payout they received after the death of their adult son.
In 2013, the couple’s’ son died in a motorbike accident. He was employed as a pilot and up to the time of his death had lived at home with his parents. As administrators of their son’s estate, the couple received a lump sum payment of $500,000 under their son’s life insurance policy, which was part of his employer’s super scheme.
The couple applied for a private ruling that the $500,000 was a superannuation lump sum that was not assessable under the tax law. The Commissioner issued a private ruling to each taxpayer ruling that they were not death benefit dependants.
Although the AAT held that the Commissioner’s ruling was correct, it noted the couple had provided “additional information” asserting they had a close personal relationship with their son. The AAT said that had the Commissioner been provided with that information earlier, he would have asked the couple to make an application for another private ruling. Accordingly, the AAT ordered the Commissioner to request that the couple make another private ruling application.
Finance Newsletter – June 2016
Interest rates drop!
Do you have the best rate available for your home and investment loans?
You may have noticed a Difference between home loan and investment loan rates? You might be able to save thousands per year in interest by reassessing your current loans. It costs nothing to find out.
If your interest rate is over 3.84% variable then you may be able to save by changing loans and or banks. I have access to a major bank that is currently offering customers a 3.84% variable rate .This NOT a honeymoon rate, discount is for the life of the loan. Conditions apply – owner occupied homes, principal and interest payments, minimum loan $500 000, 80% LVR maximum – includes redraw facility. No application, monthly, valuation or annual fees. If you are interested in saving thousands per year call Mercia finance to see if we can show you how to benefit from a better rate.
Investors will have read that most banks are increasing the rate on investment loans. This includes current investment loans. If you are a property investor check your rates and find out if these increases apply to you. If you are not sure Ask Mercia finance for an obligation free loan check. Some institutions are not increasing the rates for investors. So this is a good time to make sure you have the best loan for your circumstances.
If you have questions regarding any type of loan, call Dan Goodridge on 04144 233 40. Our service is free of charge to you the borrower and we have access to all the major lenders in WA. Call us anytime. After hours is OK.
Property Newsletter – June 2016
4 tips to minimise your tax bill
Tax deductions for property investors are widely known but rarely understood.
Given the complexity of the matter, understanding the tax deductions you’re allow to claim can become overwhelming.
However, for property investors it pays to be familiar with the ins-and-outs because you can literally save thousands of dollars.
Here are 4 ways to minimise your tax bill.
1) Income splitting for couples
Structure your asset holdings so that the lowest amount of tax is payable, while continuing to optimise wealth creation. Property is expensive to transfer and restructure so you need to plan ahead before you purchase. As a general rule of thumb, negatively geared property should be in the name of the highest income earner while positively geared property should be in the name of the lowest income earner.
2) Maximising depreciation claims
Items deemed ‘plant and equipment’ on your investment property are depreciable items and are treated separate to the building. To minimise your tax, understand what is classified as plant and equipment as well as these item’s depreciation rates. In some specific circumstances, the building is also a depreciable asset. This is for residential buildings where construction commenced on or after July 18, 1985 or where construction of structural improvements started on or after February 27, 1992. Most investors use a quantity surveyor to provide them with a depreciation report.
3) Travel expenses
In some circumstances, travel expenses can be deductible, such as meals, transportation and accommodation. This may allow investors to claim such expenses when inspecting interstate investment properties. However, this is only the case if it’s the predominant reason for travel and if the travel coincides with private holidays, the expenses must be apportioned.
4) Investing via SMSF
The main advantage of investing via SMSF is the low tax rates – superannuation funds only pay 15% income tax and 10% tax on capital gains during the accumulation phase and 0% tax in pension phase for most investors. However, SMSFs aren’t for everyone as they can be costly to establish and maintain. Investors need to consider the pros and cons of investing via SMSF and if it’s an option that suits their strategy.
Want to learn more about property tax and investment strategies? Register for our upcoming webinar, Property Finance Strategies: Maximising your opportunities.
Please note: Momentum Wealth and its affiliated entities are not accountants or financial planners. While all information is provided in good faith, you should seek your own independent advice in relation to all tax matters.
Which is more important – location or property type?
It’s a common question among many investors – what’s the more important decision, choosing the location or the type of property when buying my next investment?
With literally hundreds of suburbs in each of Australia’s major capital cities, property investors have a huge range of choice when it comes to picking the location for their next acquisition.
Similarly, there is a large variety of property types to choose from, whether it be stand-alone dwellings, villas, townhouses, development sites or apartments, and then do you choose newly built or established?
So what’s more important, the location or the type of property?
The answer will largely be dependent upon your property investment goals, which, for most people, is to generate capital growth and a solid rental income.
For capital growth and strong rental demand, the location of the property is typically the most important aspect.
However, the location will generally have to work hand-in-hand with the property type.
A location may only make a good/bad investment if you hold the right/wrong property type.
For example, take:
- a stand-alone dwelling
- on a large lot
- in a suburb where land is scarce
- but apartments are rife
Provided the macro and micro-economic factors stack up, this stand-alone dwelling would generally make a good investment because of its large land component. On the other hand, an apartment in the same area would likely underperform because there is so much similar stock in the area.
It’s also important to consider your unique circumstances, such as financial capacity, risk tolerance and life circumstances.
If an investor is financially constrained and has a low tolerance to risk, a development site may not be the best option.
Want to find the best investment property that will suit you?
Advisors key to smart developments
Think property development is too hard? Well, think again. By surrounding yourself with a good support team of specialists, it’s much easier to build a highly profitable development project.
Developing a property doesn’t mean you have to go it alone. In fact, smart property developers will engage a team of specialists to provide advice to achieve the best outcome.
It’s much the same as engaging a financial planner, a stockbroker, an accountant or even a personal trainer for that matter.
You seek out these professionals because they’re experts in their fields and can recommend the best course of action to achieve your goals, whatever they may be.
Property development is no different. It’s important to engage professionals that can minimise the risk of a development while maximising returns.
But like any advisors, various property development advisors will provide varying degrees of service – some bad, some good, some exceptional.
So what questions should you ask yourself to ensure you’re engaging the right advisors? Here are a few key questions to know you’re receiving the best advice.
Is the company a builder or a development manager?
- If the company builds the development for you, there’s no competitive tendering process when awarding the work so you’re unlikely to be receiving the best price. Alternatively, a project manager will be able to tender the work to several building companies and award the company with the most competitive bid. Therefore you should engage a development manager.
Does the company have in-house specialists who understand building requirements from council-to-council?
- Specialists who understand local building requirements, such as planning specialists, are essential to maximising the development potential of your site. A company that has planning specialists in-house will be able to optimise the design of your development and may be able to find ways to include more dwellings on your site, which can lead to higher returns.
Does the company have in-house research specialists?
- If you own an existing development site, research specialists will be able to recommend the best products to suit that area. Alternatively, research specialists can find highly profitable sites conducive to development that will fit your budget.
Does the company have a good track record?
- Ask the company for testimonials from previous clients as well as their contact details so you can call them yourself and ask your own questions. Ask the company to take you to some of their completed developments as well as some under construction so you can see the quality of work and different types of projects they’ve managed
Smart property developers utilise advisors who can help to maximise their returns. There’s no need to go it alone and with a good development manager, just about anyone can build a highly profitable development.
Have you always wanted to complete your own development? Contact us today for a no-obligation consultation.
Strictly business: managing your investments
Are you considering befriending your tenants? It might be a decision you come to regret if you decide to mix business with pleasure.
It may seem like a great idea to introduce yourself to your tenants because you’d presume they’d have a greater respect for your belongings than a complete stranger.
However, forming relationships with tenants can backfire, in some instances, as the lines become blurred between friend and landlord.
For example, a tenant you’ve become good friends with may start stretching the terms of the rental agreement by:
- Failing to pay rent on time
- Not maintaining the property adequately
- Bringing pets into the house
If you’re a self-managing landlord and you’ve become good friends with the tenant, these types of scenarios can become tricky to handle, particularly if it gets to the stage where the tenant needs to be evicted.
As a landlord you may also become amenable to their requests or situation.
This is not to say that you can’t be courteous or sympathetic to your tenants, but the relationship should be maintained at arm’s length – being friendly is different from being friends.
The key to being a good property manager is that you need to treat your investment property like a business.
That’s a primary reason why you should utilise a professional property manager who will act as an intermediary and help remove the emotional decision making process when significant issues arise.
Want to learn more property management tips? Download our free eBook here.
Suburb snapshot: Lynwood
Amid ongoing gentrification, Lynwood provides investors with an affordable price point and is located next door to some more fancied postcodes.
Lynwood is located in the City of Canning just 12 kilometres south-east of the Perth CBD.
Bounded by Metcalfe Road in the north, High Road in the south west and Nicholson Road in the east, the suburb comprises about 3,100 residents with a median age of 34.
About 73% of the properties are either fully owned or being purchased with about 26% being rented.
With a median house price of $460,000, Lynwood’s main drawcard is its affordability and proximity to more fancied suburbs, such as Parkwood to the south east and Ferndale to the north.
While the suburb is experiencing gentrification, there is some state housing in the area but savvy investors can find pockets in which it’s not present.
Lynwood Village Shopping Centre is located within the suburb and Westfield Carousel Shopping Centre is located just 2.5km away.
The suburb is established residential, mostly zoned R20 in the south and R30 in the north, with approximately 90% houses and 8% duplex, villas and townhouses.
The housing stock was predominately developed throughout the 1960s and 1970s and only a small portion contains new developments.
About 18.3% of residents are employed as professionals which is around the WA average of 19.9%, while 16% are technicians and trade workers and 15.6% are clerical administrative workers.
Bannister Creek Primary School is located within the suburb and Lynwood Senior High School is directly adjacent in Parkwood. There are large areas of parks and reserves, including Bannister Creek Parks, Purley Park, Woodford Park and Edgeware Park.
Longer leases provide less stress
The commercial and residential markets can differ significantly, one main point of difference being the length of lease agreements, which for commercial property are weighed in the investor’s favour.
If you’re a residential property investor or ever rented a house or a unit, you’ll know that residential leases are relatively short, typically 12 months or as even as short as 6 months.
As an investor, this means you’ll have to go through the rigmarole of renegotiating the lease agreement quite frequently, provided you don’t utilise a professional property manager.
There’s also the prospect of more frequent vacancy periods, as residential tenants can be more nomadic.
Commercial property is typically different, though, as lease agreements are generally several years and, in some cases, can be as long as two decades or more.
It’s evident that commercial leases are generally much longer than residential.
This is highly beneficial for commercial investors as they don’t need to renegotiate the lease agreements as regularly or worry about finding new tenants as frequently.
However, there are downsides, though, as commercial properties will often experience much longer vacancy periods than residential properties.
It’s not uncommon for commercial properties to remain vacant for several months or even more than a year, while residential properties typically remain vacant for just several weeks or slightly longer.
So as a commercial investors you have to be comfortable with these long vacancy periods, however once you’ve secure a tenant, you’ll have peace of mind that you don’t need to renegotiate the lease for some years.