"Your net return for one of these smaller office suites is around 7% per annum, compared with a 3.5% net return for apartments. So I'll leave you to do the maths!"
Five common myths about commercial property investment: Chris Lang
Here are several common misconceptions I frequently hear when people are looking to invest in commercial property.
1. Securing properties using the internet is easy – you don't need any professional help at all.
Finding a suitable property is only half the task.
The other half involves properly assessing the property — both physically and financially. And then you have to package up the deal that's best for you.
And this is where having a top consulting team (for the property, legal, finance and construction aspects) is worth its weight in gold.
2. Residential investors will find it a difficult transition.
This stems purely from a lack of knowledge and therefore, proper understanding. And that's where your consulting team comes in.
Some of my most successful clients have been those with little or no prior involvement with commercial property. However, they were clear thinkers and could quickly assess the advice being given to them.
3. You need loads of cash
Again, this is simply not true. Sure, many commercial properties may sell for millions of dollars. But you can also buy well-leased strata office suites for between $350,000 and $500,000. And this more or less the same price as you would pay for an apartment.
However, your net return for one of these smaller office suites is around 7% per annum, compared with a 3.5% net return for apartments. So I'll leave you to do the maths!
4. Commercial tenants are difficult to deal with.
Because commercial tenants are running a business from your property, they have a vested interest to keep it looking presentable.
Besides, their lease will require them to undertake (and pay for) any required maintenance. And when the time comes for them to leave, there is also a clause requiring them to "make good" beforehand.
5. It's harder and more expensive to manage commercial property.
If you choose to manage the property yourself, then you may well run into some costly problems. But that's the very reason why you would engage a competent managing agent.
And unlike residential management fees of 7%, your fees to manage commercial property will generally range between 3% to 5% of monies collected — depending upon the size of the property involved.
Bottom line: Hopefully, this short summary has helped to dispel some of the common myths surrounding commercial property.
Chris Lang is an advisor to commercial property investors and gives keynote speeches and regular seminars on the best way to invest in commercial property. He maintains a blog, his-best.biz, which he updates regularly about the best way to get the most out of your commercial property investment.