The relationship between demand and supply shape both residential and commercial markets.
However, the ways in which commercial property operates – its potential for growth and the opportunity for steady tenants – is dictated by fundamentals that can differ to those of residential property.
As director of Rethink Investing Scott O’Neill shares, investors tend to assume that “it is a very highly expensive thing that you need a lot of dollars to get into” – and so it’s not often an avenue that they will confidently dive into.
“The reality is that you can find a property in a capital city for $350k, sometimes even less. We have a good tenant in it, three year plus lease, a good quality suburb. The various entries aren’t too high, and then once people get past that, then they start to seriously consider it,” O’Neill shares as he sits down with Your Investment Property magazine editor Sarah Megginson.
In fact, rental returns in commercial can at times soar considerably higher than that of residential, and while there’s always the risk of tenants vacating, O’Neill says that the effects of this can be mitigated by ensuring that you purchase the right type of property and keep actively involved in the sphere.
“You need to talk to a lot of experts in the field that have purchased properties before, even just calling up commercial real estate agents just to ask them about what is coming up,” O’Neill says.
“And [connect with] someone who’s been there, done that, preferably done it for many years and done it for multiple deals so they can tell you the good side of things and the bad side.”
Most lending currently falls between the 70% to 75% loan to value ratio (LVR), O’Neill says, but he has started to see 80% LVR enter the market. Interest rates look to generally vary between 3.5% and 4.5%.
O’Neill expects this year to welcome an even more competitive rate for larger loans.
To find out how to take your first steps into commercial investing and which experts to connect with, watch Scott O’Neill’s full interview in the video above.