If you are new to the commercial property scene, read on for an introduction to some of the ways you can begin a portfolio and start building wealth. This type of investing can be highly effective once you know how to get started successfully.
Commercial Property Funds
A common way to enter the commercial property market is to invest into a fund that already owns a bunch of properties. Many of these offer decent annual interest rates that can be paid to you directly as well as a share of your fund’s profits. Funds can be a way to reduce risk as versus purchasing individual sites yourself and a way to access foreclosure properties that are not available to the general public. The types of funds can vary widely in function and size, but can for example include a property market syndicate, unit trust, joint ventures (with family or friends) or wholesale funds through major financial institutions.
Manage With A Team
A fund is also particularly useful if you have a smaller initial lump sum to invest with, as your money will go further. Having a team to manage this type of investment is also a bonus as commercial property differs to residential in a number of ways in Australia. For example, commercial properties are subject to GST on the purchase price and on any rental income that is received. They are also a way to consistently add smaller amounts of money to an investment rather than waiting to build equity in one property before you move on to another. As a whole though, you will have less control over this type of investment and as with any enterprise, financial problems are certainly not unheard of despite Australia’s relative protection from the global financial crisis.
Buy Commercial Properties Yourself
On the other end of the spectrum is your individual purchase of a variety of commercial properties within the commercial sector. This can be a time consuming exercise to establish, although many people tend to gradually add to their portfolios unless they have a serious lump sum of cash at the ready. You may choose to also have a team or individual manage your portfolio and this is especially useful to hear about upcoming investment opportunities or to assist with the legal and tax administration that goes along with commercial property.
To be successful managing your own purchases and sales, not only will you have a keen interest in the market and appreciation of the cycles that will occur, but you’ll also an eye for up and coming property development hotspots. The mantra of ‘buy low and sell’ high certainly applies here, but due to the security of Australian property, investors are also fans of a set and forget approach that leaves properties for the longer term or whenever an injection of cash is needed. Mixed commercial/residential zoning is particularly popular amongst the budding DIY renovators. But before you start buying a bunch of offices or a business for sale though, you’ll need to check in with your lender as loan criteria for investors is currently being tightened and even advice from quite recently may no longer apply to your financial situation.
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