What is involved in investing in a commercial property? Angus Raine

GUEST OBSERVER

With low interest rates, combined with strong house prices and tighter residential investor lending conditions, lenders are urging investors to consider adding a commercial property to their real estate portfolios.

If you’re new to commercial real estate, the good news is that you can still rent out the property just like a house or apartment. And better still, you receive a rental income in return. In fact, as a general rule of thumb, the rental yields for commercial property investments may vary between 6 percent and 12 percent.

This wide variation can be attributed to whether it’s a retail, industrial or office space, the build quality and location of the asset, its environmental rating and so on.

Other important differences with residential real estate include the fact the tenant of a commercial property is called a “lessee”, and the leases generally run for longer periods of time – usually several years. The trouble is that when a commercial lessee decides to move on, finding a replacement business to take up the lease can be a little more time-consuming than finding a residential tenant.

Also, Goods and Services Tax (GST) applies to a commercial property. If you buy a commercial premises, such as a shop or factory, you may be eligible to claim a credit for the GST included in the purchase price.

You may also be able to claim GST on other expenses that relate to buying the property – such as the GST included in solicitors’ fees and ongoing running expenses, according to Australian Taxation Office. So be sure to keep your records and paperwork up to date.

In addition, any commercial properties used in the running of a business are subject to capital gains tax (CGT). You’re also generally liable for GST on the sale price and can claim GST credits on related purchases.

Angus Raine is executive chairman, Raine & Horne.