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Investment Guide

Why invest in commercial property?

Norwest always has an excellent supply of investments. Use the search engine or call one of our agents to discuss. In addition, we are often able to source deals "off-market" so it is worthwhile discussing your requirements with us. We can assist investors by introducing and putting together deals, leasing and then managing the property.

WHAT YOU NEED TO KNOW ABOUT INVESTING IN COMMERCIAL REAL ESTATE

Higher rental return: net income returns for commercial property are typically in the range of 7-9%pa compared with 2-4%pa for residential property.

Leases are typically for longer periods: typical commercial leases will be for 2-3 years, but can be as long as 20 years.

Fixed rental uplifts: many leases will include fixed rental uplifts in the lease agreement.  These may be by a fixed percentage (eg 3-4% per year), by inflation (measured by reference to the consumer price index) to the market level or a combination thereof.

Commercial investment properties are not necessarily expensive: properties may be available from a couple of hundred thousand to many millions.  We have a range of investment properties to suit most budgets.

Tenants pay outgoings: many leases will provide for the outgoings to be paid by the tenant (known as a “net lease”).  This gives landlords certainty of return and protects landlords from increases in outgoings.  Outgoings that may be recovered from tenants typically include: council rates, water rates, land tax, insurance, strata levies and property management fees.

The Residential Tenancy Act: deals only with residential property and has many consumer protection features many of which are not favourable to owners.  Commercial tenancy agreements are dealt with as business contracts and are negotiated at arm’s length between the parties.  This means that the parties are not bound by the Tribunal system and disputes are handled through the Courts.

Commercial leases can include many protections for landlords: tenants can be required to service the airconditioning, steam carpets on departure, repaint the property on vacating, will generally be required to pay a larger bond and repair damaged property.

 

SOUNDS TOO GOOD TO BE TRUE, WHY DOESN’T EVERYONE INVEST IN COMMERCIAL PROPERTY?

Bank finance: banks will only generally lend 60-70% of the value of commercial property (but possibly at higher levels for residential property). When commercial properties become vacant, the time before a suitable tenant is found may be longer than for a residential property.

People tend to understand residential property better: afterall, for many people, their own home is their largest investment.  Residential property in recent years has enjoyed significant capital growth while growth rates for commercial property tend to be more steady.


Are you getting the most out of your investment property?

Many owners of commercial properties are not getting the most out of their investment and are doing more work than they should have to.

Professional property management can increase your bottom line and take the hassles away from you… and it may be free…

 

Nothing is for free…or is it?

A good number of commercial leases include a provision for tenants to pay the landlord’s outgoings which might include management fees. Unlike residential management, where fees can eat into your return, let your tenants pay to manage your property. It may not be free, but you don’t have to pay a thing!

Did you increase the rent on the anniversary of the lease?

Commercial leases generally provide for an annual rent increase. The compounding effect of these increases can add up to large amounts of money. If you have not been collecting rent at the increased level, you could be short changing yourself by significant amounts.

Once a lease comes to an end, some tenants wish to remain in occupation on a month to month basis. You should be entitled to increase the rent to (at least) market rent. This is the time you need a professional manager such as Norwest with the appropriate market analysis to ensure you are receiving the rent to which you are entitled.

Are your tenants complying with their lease obligations?

Leases may be confusing, poorly worded, vague or silent on important issues. Enforcing lease agreements can sometimes be difficult and time consuming. A trained professional property manager knows what is and isn’t possible from both a legal and pragmatic perspective. Our managers have many years of experience each and are able to deal with matters as (and sometimes before) they arise to ensure a fair and equitable outcome is achieved for the benefit of all parties.

Furthermore, our property managers regularly inspect properties under our management to ensure that any damage to buildings is dealt with promptly and any breaches of the lease are addressed. It is important that you or your manager takes a proactive approach – leaving matters to the day your tenants leave is often too late especially when there is the possibility that a tenant will do significant damage to a property.

Are you having trouble keeping proper records?

Our property management services include providing you with monthly statements that set out all income and expenses. These can be provided in a range of formats and ensure that you and/or your accountant have all the information you need to assess the performance of your investment and ensure your tax obligations are met.

Did you miss your last outgoings reconciliation?

Net rentals should be balanced annually. Large increases in outgoings over the past few years could be eating into your return. You need to be carrying out an annual reconciliation to ensure you are being fully reimbursed for your expenses. A number of expenses, especially land tax, has and will continue to increase – you need to ensure an appropriate budget is set at the beginning of the year and a reconciliation is carried out promptly at the end of the year.

We see many clients who have found it difficult to handle this and put it to one side and, as a result, miss out on their opportunity to claim back legitimate expenses. Why not leave it to the professionals?

Is it time you relieved yourself of the hassle and appointed Norwest to manage your commercial investment?

Should you wish to discuss your property management requirements with us, please do not hesitate to contact us

 

What is my property worth?

Norwest negotiates a large proportion of the sales and leasing deals in areas served by our strata managers. Accordingly, we are well versed in the current market and can give you a good indication of the price you might reasonably expect for your property. Should you wish for us to provide you with a market appraisal of your property, please fill out the form provided.