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For retirees looking
to diversify away
property, shares and
returns, yield and solid
outlook can make it an
but there are risks.
The average length of a residential
tenant is 15 months, Lang notes; for
commercial it is around three years,
but often lasts for decades.
Another positive is that tenants
generally pay all the outgoings, such
as rates and insurance. “Whatever
you receive each month, you’re
effectively banking,” Lang says.
There are usually better tax benefts
through depreciation of things like
air conditioning and partitioning,
and Lang points out that commercial
deductions are around three to four
times those of residential property.
Commercial tenants are motivated
to look after the property. It’s where
they make their living, and they also
like to keep their staff happy. One of
the downsides of owning residential
property is weekend calls to fx faulty
plumbing. Commercial tenants are
required to meet theses costs under
the terms of their leases.
Of course, there are risks in direct
commercial property holdings.
The longer tenancy periods of
commercial property can be a
double-edged sword. The periods
of vacancy are also much longer.
While an apartment might be vacant
for around two to four weeks, a small
strata offce might be vacant for four
to six weeks and possibly up to two
months, says Lang. That vacancy
period, however, “is counterbalanced
by higher net return”, he says.
Seek out the experts
Proper due diligence can help offset
risks, so new investors should seek
WHAT'S OUT THERE?
The range of commercial property types
can be staggering -- from small offices for
one, local cafes and retail premises, right
through to large inner-city offices and
Industrial property, Brisbane
The property is a business unit in a
corporate office/warehouse complex
eight kilometres from Brisbane's CBD. It
is close to public transport, shops, cafes,
fire and police services. It has 20 square
metres of ground floor showroom/office
with natural light, 112 square metres of
warehouse, and 75 square metres of
mezzanine office with additional storage.
$650,000 TO $700,000
Retail property, Melbourne
The agent describes the retail freehold
store at the bottom of a residential and
commercial building on St Kilda Road
as a "chic style investment"
. The shop is
48 square metres with a car park on the
title and a long, secure lease. It currently
returns $39,000 per annum, plus GST.
Office, Sydney CBD
The 150 square metre office is located
in a modern commercial building in
the heart of Sydney's CBD on Pitt
St, close to both Martin Place and
Circular Quay. It has meeting rooms,
offices, storage and work stations, a
private kitchen, security access and
windows providing plenty of natural
light. It has recently been renovated.
Find expert financial advice tailored
to Australian retirees and over-55s
by visiting the Probus South Pacific
website's Lifestyle section.
Location and payout are both
important. “You have to make sure
that when a tenant goes after three,
four or fve years, you’ve bought in an
area that will allow you to readily
re-lease the property,” Lang says.
“And it’s no good having the
best location but the property
being unlettable because it’s
Finding a property
Commercial property can be
accessed through direct holdings,
REITs and property syndicates. A
small-scale offce can be bought for
between $350,000 to $800,000, so
the purchase price is comparable
to a residential investment.
It’s best to borrow conservatively.
“If you borrow 60 per cent or less you
can get a non-recourse loan, which
means you don’t have to provide
personal guarantees," Lang says.
For retirees looking to diversify away
from residential property, shares and
cash, commercial property’s strong
returns, yield and solid outlook can
make it an alternative, as long as
investors do their research. ••
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