What are the must-have investments that every property investor and developer should have in their property portfolio? We take a look.
There are several ways to grow your wealth through property investment. Whether you're looking at residential, commercial or industrial, each option has its pros and cons, depending on what you're hoping to get out of the investment.
When investing in residential property, you can generally borrow up to 80 percent of the property’s value without incurring lenders’ mortgage insurance.
The benefit of a residential property investment is being able to earn rental income and gain capital growth.
When looking for a residential property to invest in, take into account the proximity of local schools, shopping centres and transport options to ensure you have a range of potential tenants to choose from.
Besides the initial outlay for the deposit, there are a number of ongoing management fees for residential property, including council and water rates, land tax, insurance and body corporate fees.
Before taking the plunge, be sure to also factor in the high entry and exit fees of residential property. Additional costs to the purchase price include stamp duty, conveyancing fees, legal charges, and pest and building reports. When selling, you must pay agents’ fees, advertising costs and possibly capital gains tax.
Commercial real estate is real estate used for business purposes, such as office and retail developments. Investing in these assets comes with stricter lending conditions, and requires a significantly larger deposit – around 30 to 50 percent – than residential property.
One of the main benefits of commercial property investments are the higher rental yields. While residential property averages at around four percent, depending on the market, a commercial investment could offer returns of seven percent or more.
Another benefit of investing in commercial property is the generally long lease periods of between three to 10 years. Additionally, the tenant is responsible for meeting all outgoing costs of the building.
Of course, commercial property is not without risks. There is the potential for longer vacancy periods and poor resale, leaving you out of pocket. But as with investing in residential property, a good location will go a long way in ensuring success. When looking at commercial sites, consider the development potential of the building for future tenants who may want to customise the space.
Industrial real estate investments can range from storage units to car washes or buildings that can be used for warehousing, research and distribution.
These special-purpose real estate investments also give investors the opportunity to charge extra fees – for example, for a coin-operated vacuum cleaner at a car wash – thereby increasing return on investment.
Industrial properties have lower operating costs than office or retail spaces. They're less management intensive and require a smaller investment – all great benefits for those wishing to diversify their property portfolio.
When looking to invest in an industrial property, consider functionality (such as ceiling height), proximity to major transport routes, building configuration and access to loading areas near the site. Also, check the zoning conditions of the area to confirm what type of industrial tenants can occupy the space.
Whether you invest in residential, commercial or industrial real estate, diversifying your property portfolio and ensuring you hold a range of assets can be a critical component of your long-term success.