With the property market growing and becoming more successful, investors want to know which properties will provide the best return. A lot of emphasis is put on the location, but do you know what type of property will be the most profitable? Commercial and residential properties both have the potential to provide a profitable return, but knowledge of the industry is a big factor.
Residential properties are usually the more common option investors choose as there is such a big demand for it. Investors have most likely been a tenant themselves, so they know what to expect. Therefore, they have industry knowledge before they even start.
When choosing a residential property, one of the first decisions you will need to make is whether to buy an apartment or house and each have their own advantages.
Apartments are usually smaller and don’t have backyards, which may equal less maintenance. But they will typically have a strata title which means body corporate fees. These fees pay for general maintenance on the building. Bear in mind that buildings with a pool and gym will equal higher body corporate fees; however these features may make the property more appealing to renters.
A house on its own piece of land is the more common investment property type; however they do usually require more maintenance. Houses are normally bigger than an apartment, which can equal more people living there, which could result in more wear and tear. However, as there is no body corporate, you are able to make changes to the property as you see fit. When it comes to tenants, most houses are occupied by families who have children. As most families favour staying in one spot, it will mean your property will stay tenanted for longer.
Not everyone wants to tap into this side of the market as there is the fear of the unknown. The majority of people do not own their own business with an office, so therefore they don’t know what potential profit or expenses would be. However, for those willing to research this market, it could pay off.
There are two different types of offices you could invest in: multi-office buildings or a free standing office building. Most multi-office buildings are out of reach for investors; however some are divided into strata titled properties, so it is possible to buy one office suite within the larger building. The free standing office buildings usually mean you will have one or two small business tenants. Although they may be easier to manage, there is the possibility the business may fail. But you could avoid this situation by researching the potential tenant’s financial history and goals to see what their chances are for survival.
Industrial properties are usually sorted into large and small. Large properties are usually owned by the corporation operating from it. Whereas showroom warehouses and car yards are considered small properties and are more affordable. Many businesses owners choose to own the property separately and then lease to their business. This is a great option as you know you can trust your tenant and if you decide to sell the business, you can create a passive income by continuing the lease with the new owner.
Similar to offices and industrial, the big retail properties are usually owned by large corporations, however, places such as local shops are in reach for other investors. Small retail properties do come with a big risk factor. If a new shopping centre is opened down the street or even in the next suburb, it can affect your store. Presentation is a huge priority for retail business owners, so ‘refurbishment’ may be tossed around a lot. Therefore, it is important to include in the lease any provisions to cater for possible renovations to ensure you do not lose any extra money.
Deciding on an investment property is not as simple as picking between residential and commercial. Knowing the pros and cons of each type of property could help increase your chance for success. Most importantly, purchasing an investment property requires drive and determination.
Anouska Linz is Manager, Online Sales at State Custodians and has over 10 years’ experience in financial services, both in broking and banking. Holding a bachelors degree in accounting, Anouska quickly discovered a love for mortgage lending and assisting people to achieve their home ownership goals. She leads a team of highly experienced lending specialists who are passionate about finding lending solutions which result in real wins for the customer. She is also a massive netball fan.
For more information on our home loans, visit www.statecustodians.com.au or call 13 72 62.