A guide to commercial property investment

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Unlisted property trusts
June 30, 2020
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Learn how you can access desirable commercial property investments

Investing in commercial property is very appealing to investors at any stage or experience level. There are several key benefits which make commercial property attractive, as well some disadvantages and risks which you need to be aware of.

There are also three different types of commercial property investments you can consider:

  • Direct investment
  • Listed commercial property trusts
  • Unlisted commercial property trusts

Read more about commercial property investment options below or find out how you can invest through an unlisted property trust.

Getting started with commercial property investments

Investors who are considering commercial property will likely compare the potential risks and yields to both residential property investments and investing in shares.

The primary difference between residential and commercial property investments is that while residential properties are usually negatively geared, commercial properties are positively geared. This means that you can earn income from a commercial property investment instead of having to wait for a capital gain, as you usually would with a residential property investment.

When comparing commercial property investments to share investments, it’s worth considering that each one will likely serve a different purpose in your portfolio. Investing in commercial property is an excellent diversification strategy since it provides regular investment income and long-term capital stability.

Commercial property investment options

There are three different ways to invest in commercial property, and each option has its own advantages and disadvantages. The three ways you can invest in commercial property are:

1. Direct investment

You can choose to purchase your own commercial property and lease it to commercial tenants. Depending on the size and location of the property, this option is usually extremely expensive and only available to investors with a very large amount of capital to invest.

With a direct commercial property investment, you will also be directly responsible for collection of rent, recovery of statutory charges and operating costs, rent reviews, insurance, compliance with fire and safety regulations, repairs and maintenance, leasing of vacancies and other property management items.

2. Listed property trusts

Listed property trusts, also known as real estate investment trusts or REITs, are listed on the ASX and function in much the same way as shares. REITs have the advantage that you can invest very small amounts and the investment can be sold at any time.

The downside of REITs is that they are much more volatile than unlisted property trusts and direct commercial property investments. This is because they tend to reflect the movements of the stock market generally rather than the value of the properties in the trust. This also means that REITs tend to be a poor diversification strategy for investors who already have an investment in shares.

3. Unlisted property trusts

Unlisted property trusts work in a similar way to direct commercial property investments except that the trustee is responsible for all the property management tasks. The main goal of an unlisted property trust is to team up with like-minded investors so you can invest in a commercial property or properties that you could not afford by yourself.

The trust will typically run for a fixed term, such as seven years, which means you can’t sell your investment whenever you choose as you can with a listed trust. However, this also means that unlisted property trusts offer better capital stability and are a more desirable diversification strategy.

Commercial property investments for consistent and reliable income

For any investor considering a commercial property investment, you need to remember that the success of a commercial property investment depends on the success of the tenants’ businesses. A successful commercial property investor needs to understand how the tenants make their businesses profitable.

At Fawkner Property, we create unlisted property trusts with the goals of providing consistent monthly returns and long-term capital stability. We are a team of property syndicators with a great deal of experience in creating and managing unlisted property trusts.

Each of our unlisted property trusts includes a number of properties which we have chosen to ensure we have profitable tenants in desirable real estate locations. We also use a diversification strategy to ensure our trusts are resilient to economic downturns.

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