Investing in commercial real estate is a wise and lucrative financial decision for many reasons. Commercial properties offer a reliable and predictable source of income through long-term rental payments, especially when leased to reputable tenants. Furthermore, commercial properties typically appreciate in value over time, providing significant potential for capital gains upon sale. Additionally, commercial real estate investments offer diversification in an investment portfolio, as they are a separate asset class from stocks and bonds. The tax advantages offered by commercial property investments, including depreciation and deductions, also potentially reduce the investor’s taxable income. Overall, investing in commercial real estate presents a promising opportunity to generate income, diversify investments, and achieve long-term capital appreciation.
Here are some of the benefits I have found from commercial property investing.
Reliable Income Stream:
Commercial properties can provide a reliable income stream for investors. Unlike residential properties, commercial tenants tend to sign longer-term leases. The typical lease length for a commercial tenant can range from 3 to 10 years, providing the investor with a more predictable income stream. Additionally, commercial tenants tend to be businesses or corporations that have more financial resources and stability than individual residential renters. These tenants are often willing to pay higher rent amounts to secure a space that is appropriate for their business needs. Lastly, leases can include rent increases over time, providing investors with the potential for a growing income stream.
Potential for Capital Appreciation:
Investing in commercial property can also provide potential for capital appreciation. A variety of factors can contribute to property value appreciation, such as the property’s location, infrastructure development, and market conditions. Location is a crucial factor in commercial property valuation because it determines the level of demand for the property. Properties located in high-traffic areas with good access to transportation tend to have higher demand and, thus, higher value. Additionally, infrastructure development can also impact property value. For example, if a new road or highway is built near a property, it can increase its value. Lastly, market conditions play a role in property value appreciation. If demand for commercial space grows, property values can increase.
Diversification:
Investing in commercial property provides diversification in an investment portfolio. By diversifying, investors can potentially reduce risk and volatility in their portfolio. Commercial property is an alternative asset class to traditional investments such as stocks and bonds. Real estate investments have a low correlation with other asset classes, meaning they tend to move independently of other assets. Additionally, investing in commercial property across different geographic regions and property types can further reduce investment risk.
Tangible Asset:
Commercial property is a tangible asset, meaning it is a physical asset that can be seen and touched. This tangible nature makes commercial property less likely to lose value completely, unlike some financial assets. Real estate investments provide the investor with a sense of control over their asset, and they can make changes to the property that can increase its value. For example, renovating a property or improving its infrastructure can increase its value.
Tax Benefits:
Investing in commercial property in Australia offers a range of tax benefits for investors. One such benefit is depreciation, which allows the investor to deduct the cost of the property over time, reducing taxable income. Commercial property investors can claim deductions for the decline in value of the building and any capital works expenditure incurred on the property, such as renovations or extensions. Additionally, expenses such as property management fees, repairs, and maintenance can also be deducted from taxable income. The interest paid on a loan taken out to finance the commercial property investment can also be claimed as a tax deduction.
Another tax benefit for commercial property investors in Australia is the Capital Gains Tax (CGT) discount. If an investor holds the property for more than 12 months, they may be eligible for a 50% CGT discount when they sell the property. This means that only 50% of the capital gain will be subject to CGT.
Investing in commercial property can offer a range of benefits, including a reliable income stream, potential for capital appreciation, diversification, a tangible asset, and tax benefits. At Carters Investment Group we specialize in helping investors navigate the complex world of commercial property investment. We can guide you through the process, from identifying the right property to securing financing and managing the property. If you’re interested in learning more about investing in commercial property, contact us to speak with one of our professionals and get started on your investment journey today.
Disclaimer: The information provided in this article is solely the author’s opinion and not investment advice – it is provided for educational purposes only. By using this, you agree that the information does not constitute any investment or financial instructions. Do conduct your own research and reach out to financial advisors before making any investment decisions.
