At a glance:
- The commercial property market in Australia offers a good return on investment (ROI), a steady income source through rental yields, and long-term growth potential.
- To make the most of a commercial property investment, potential investors should carefully assess their preparedness through market knowledge, financial position, investment strategy, and risk tolerance capacity.
- Considering the complexities of the property market, seeking professional help is crucial, especially for new investors.
Commercial property in Australia, especially in bustling cities like Melbourne, has been a lucrative investment sector for potential investors. Commercial property investment in Melbourne and other happening cities ensures a good ROI (return on investment), streamlined income source, and growth potential when invested properly. As investors in Australia and offshore explore more ways to diversify their investment portfolio, the commercial property market is becoming a popular choice with each passing year.
Like every business sector, the property market in Australia also has its upsides and downsides. In order to make the most of your investment and enjoy a rewarding time as an investor, there are several things you need to think of before investing. If you are looking to invest in the property market in 2024, you have to assess your preparedness for investment first. In this blog post, we will look at the top five factors to gauge your readiness for commercial property investment in Melbourne and its surrounding areas and why you should consider commercial property investment.
Why Invest in Commercial Real Estate Melbourne?
The psychology behind every investment is its income potential. The same goes for commercial property investment. The major benefit these investments foster is a steady income source in the form of rental income.
Commercial leases ensure better rental yields compared to residential leases, which are in the range of 5% to 12%. In contrast, residential rental yields range from 3% to 5%. Increments in annual rents in commercial leases, which go up to 3 to 4% p.a., are also attractive. These annual rental increments in commercial properties will safeguard the property owner against inflation.
Commercial property lease terms are generally longer, ranging from three to five years or more. If your property attracts long-term tenants, such as popular brands, government offices, or large corporations, you can receive a steady income for years.
Moreover, being a commercial property owner, you do not have to worry about paying expenses like building insurance, water charges, and council rates all by yourself. Compared to residential leases, some commercial leases come with tenant-covered outgoings, which means commercial tenants shoulder those expenses.
In addition, commercial property investments offer several tax advantages, including deductions for expenses, depreciation, and mortgage interest.
Lastly, when you decide to sell your commercial property, the appreciation value of your property over time will ensure you a considerable profit amount on your investment.
Assessing your Preparedness for Commercial Property Investment
In this section, we will discuss how potential investors can safeguard their investment in Melbourne’s property market and others. The following points will foster a proper understanding of how you can prepare yourself for property investment and make the right choice, ensuring a better ROI.
Proper Understanding of the Market
Before embarking on a property investment journey in Melbourne or other Australian cities, you have to know the market first. A proper understanding of the market will take you a long way, and make sure you avoid excessive setbacks in your journey. So, how do you understand a vast market like commercial real estate?
Follow the basics; research and analyse the current market trends. Market trends will give you a proper idea of where the market is headed and its potential in the near future. This will help you decide the right time to invest. For a comprehensive understanding of market trends, familiarise yourself with factors affecting the market like economy, interest rates, location, and supply and demand.
Your Financial Position
The financial position of an investor is both an encouraging and discouraging factor while investing. Before being overwhelmed by the potential of commercial real estate and investing blindfolded, you have to assess your financial condition.
While commercial property investment in cities like Melbourne is rewarding, you will not reap the benefits the very next day of your investment. Until your commercial property can ensure you a steady income in the form of rental yields and other forms, you need to be financially strong to cover your living expenses. In order to assess your financial situation, take a look at your income (whether you have a stable source of income or not), savings, and ongoing debts.
Furthermore, it is equally necessary to have adequate savings just in case you face some unprecedented expenses during your investment journey. It is always best to prepare yourself for the worst!
A Well-Thought Investment Strategy
Investing in Melbourne’s commercial real estate market without a well-defined investment strategy is as good as walking blindfold. You have to conduct proper due diligence about your goals from your commercial property investment to avoid potential setbacks in the investment journey.
Investors enter the market with their specific goals, be they long-term or short-term plans, a source of passive income, or both. Based on your investment goals, you have to work out your property types and budget. So, having a well-defined strategy for investment in place will work as a roadmap in your journey, guiding your decisions that align with your objectives.
Your Risk Tolerance Capacity
Like any other investment, commercial real estate investment has inherent risks, such as credit risk, market risk, inflation risk, and management risk. At times, these types of investment risks can be overwhelming, forcing you to make unwanted and aggravating decisions. So, before investing, make sure you assess your risk tolerance capacity. This will help you avoid creating any unnecessary scenarios in the future.
Real estate investments are subject to market fluctuations resulting from changes in the economy, inflation, interest rates, and supply and demand of commercial properties. Consider your comfort level with risk and your ability to adapt to the changes in the market.
Professional Help
For new investors, it may not be possible to grasp every aspect of the property market. You may miss out on things that are of vital importance while investing in commercial property in Melbourne or other markets. If you have professionals to guide you in your property investment journey in Melbourne, you will have a lower chance of facing unprecedented challenges down the road.
For professional help in investing, you can reach out to real estate agencies like Axis Property. Our experienced team of real estate agents and property managers will help you with property selection, legal advice, and market analysis. Through our years of service as a real estate agent in Melbourne and its surrounding areas, we ensure a high level of job satisfaction for our clients. From your property and tenant hunt to property management, you can contact Axis Property for comprehensive real estate management services.
In conclusion, commercial property investment in Melbourne can be rewarding for potential investors. But, before you invest, you have to assess if you are ready to embark on this journey or not. Consider factors like market knowledge, your financial position, well-defined investment strategy, personal risk tolerance level, and professional help while investing in the commercial real estate market.