What's BEST? Residential VS Commercial Property Australia
A detailed dive into... residential vs commercial property in Australia; the advantages of commercial property investment; negatives of Australian commercial real estate; AND answering which property investor is suited to commercial property.
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Key differences of commercial property in Australia...
1# Price point - commercial property starts at $150k for storage units / residential starts low like this too. Commercial property's target investment amount is between $1m - $5m for individual investors. Residential property is below or around your states median house price due to the diminishing of yields at higher price points.
2# Gearing - Generally commercial is 60% gearing and residential is 80% gearing. You can gear up to 80% on commercial property in Australia and 95% on residential.
3# Deposit - Commercial property investor's deposit is between 20% - 40% of the commercial property’s price + 5-7% for purchase costs (duties + legals + DD) - Sensible to budget 35% - 45% of purchase price as a deposit
4# Focus on Lease - in residential property investment, the leases are short term and not considered by the market to impact value.
5# Net Returns - in residential property investment, the gross rent is considered. In commercial property investment, the focus is on net rent because the tenant covers the commercial buildings outgoings.
6# Value method - for leased commercial property investments in Australia is more common to apply a capitalisation rate over comparable sales (which is the common method used in residential property investment).
7# Renting out commercial property is different. A leasing agent is used to find a tenant and the property manager takes over once the tenant has moved into the property. ALSO, the tenant pays for the property manager (in most commercial property leases).