Four reasons why commercial and industrial property suits SMSFs: Savills

Savills have advised clients on what they see as the four advantages of utilising SMSF for direct commercial property investment, in preference to other asset classes.

1. Commercial property is one of the few assets that can be bought by an SMSF from its members. Your SMSF can potentially buy your own business premises and then you can pay rent to your SMSF.
   
   A residential property, on the other hand, cannot be lived in by a fund member or any fund members’ related parties, nor can it be rented by a fund member of any fund members’ related parties. 
   
   
2. The MoneySmart website details the strict rules against using borrowed funds to make improvements to residential property that forms an asset in your SMSF portfolio, so don’t even think about buying a renovators’ delight. This can severely limit potential capital gains as you cannot renovate it to increase its value.
   
   In contrast, an investment such as a bulk storage unit or warehouse has very low capital expenditure requirements.
   
   
3. Commercial leases are typically for a longer period than residential leases – usually around five years with a further option for another five years with incremental rental increases built into the lease.
   
   If you choose the right property and tenants with stable businesses which are unlikely to be adversely affected by an economic downturn you won’t have to deal with a regular turnover of tenants and can rely on a steady rental return. 
   
   
4. Many industrial properties are purely functional in design and construction, so there is less concern about tenants maintaining them or investors having to pay for costly renovations, which is often the case with residential property investments.
   
   That said, it’s important to ensure any essential, expensive upgrades, such as those required to meet new fire safety or health and safety standards, have already been carried out before investing in a commercial premise.

Visit the Australian Securities and Investments Commission (ASIC) website to familiarise yourself thoroughly with all the rules and regulations surrounding SMSFs and property investment.