NAB’s latest Australian commercial property survey revealed that recovery from the pandemic downturn is slowly entering commercial property market sentiment. It also reported that 54 per cent of developers plan to start new projects in the next six months.
If activity like this, along with record-low interest rates, is sparking your interest in getting started in commercial real estate investing, here is what you need to know.
In this article, we will cover
- Why and how to get started
- Tip 1 – define commercial investment strategy
- Tip 2 – research
- Tip 3 – finding the property and tenants
- Tip 4 – claiming depreciation early
Why get started?
You need to start somewhere but it’s the motivation, strategy and lateral thinking that will make the difference to how successful your investment portfolio will be.
Commercial real estate investing is a great way to diversify your portfolio. When done right, it will result in high returns and reliable tenant leases that lasts years or even decades.
How to get started in commercial real estate investing
Here are our four key steps to getting started in commercial real estate investing. It may not always be a linear process but covering these will ensure you have set yourself up for success when it comes time to invest.
1. Define commercial investment strategy
This is where it’s important to ask yourself all the usual questions: Why do you want to invest in commercial property? What type of commercial property – is there a specific or multiple industries you want to invest in?
You also need to adopt big-picture thinking and understand your long-term strategy even in the early stages. Many commercial industries are affected by consumer demands, so you need to invest in property that will be able to ride through the ups and downs of the changing economy. Essential services industries are a great example of this – despite the downturn of COVID-19 they still needed to operate, whether it be in a different format.
2. Do the research
By research we don’t simply mean looking through sale listings to find the best deal. So many more factors go into the research process when buying commercial property.
Look into all data available for the commercial market as a whole and the specific industry you want to invest in. Research what the industries outlook is and if this is favourable to your investment strategy. Government resources such as the Australian Bureau of Statistics can provide information on business count rates, and the annual percentage change in businesses by industry. While real estate research from credible sources such as JLL and CBRE provide many different reports and outlooks on industry-specific markets.
External factors also need to be considered. What are the population and employment trends in the area? Is the commercial industry at risk of becoming irrelevant as the economy develops?
Then, start assessing how the investment will impact your cash flow, ask yourself if you can afford this for the long term. Assess your financial position and ensure you look at all financing options available.
3. Finding the property and tenants
The overarching strategy, your market research and financial position will inform what property you purchase. Once you’ve done this it’s time to look for tenants.
You might get lucky and land a commercial property with favourable tenants already occupying it. This is not unusual, as commercial leases often run for a longer term than their residential counterparts. You can read more about buying commercial property with existing tenants here.
If the property is vacant at the time of purchase, it’s time to start looking for tenants. A property management agency that specialises in commercial real estate can help you find the best match. It’s important to remember that sometimes this process can take longer than expected due to the nature of commercial tenancies.
4. Get a depreciation schedule early
Depreciation is the natural wear and tear of property and assets. All property investors – both residential and commercial – can claim depreciation as a tax deduction each financial year.
This deduction will help you pay less tax. Depreciation is deducted from your income each financial year, just like any other tax deduction. But the difference with depreciation is that you don’t need to spend money to claim it. This makes it the perfect helping hand when you are getting started in commercial property investing.
BMT Tax Depreciation has helped tens of thousands of commercial investors claim a life-changing amount of depreciation deductions. We apply all relevant legislative requirements to every tax depreciation schedule we prepare to ensure claims are compliant and maximised. This is essential as there are sector-specific taxation rules across commercial industries – assets in one industry may not depreciate in the same way in another.
If you’re considering an investment but have not yet purchased it, you can get an over-the-phone free depreciation estimate from BMT. This will show you just how much of a difference depreciation can make.
To learn more, contact BMT on 1300 728 726 or Request a Quote.