Mark Hay
Residential vs Commercial Property Classes

This Weeks Episode of Home in WA

Contact:
Mark Hay

Email:
markh@markhay.com.au

Website:
http://www.markhay.com.au/

Phone:
(08) 9225 7000

Fax:
(08) 9225 7777

Mobile:
0418 953 742

Address:
28/118 Royal Street
East Perth WA 6004

Most people are very aware that residential and commercial are two distinct property classes. Interestingly 5% of Australians own an investment property, whilst less than 0.5% owns a commercial property.

Residential is by far the easiest place for investors to commence their wealth creation, with typical returns equating to some 3-4%. Residential is by enlarge always far easier to rent, sell and finance than commercial property. Indeed, banks will lend up to 80% of residential properties and at any point whether the markets up down or plateauing, it is generally easier to sell or rent a residential property.

In contrast, commercial property is directly tied to the economy and typically banks will only lend 60-66% of a commercial property and even then it’s subject to stringent lease conditions etc. Typically the rate of return for commercial property is in the order of 6-8%. In essence, residential is a great way to start building and consolidating your investment portfolio. However, as you are nearing the retirement age, the higher cash returns of commercial properties are more favoured by retires and superfund’s. By enlarge for the scope of investors at this level, sees residential investment requiring far less cash and far less worry and effort to succeed.

On the other side, commercial can become a greater cash cow but with more risk directly tied to the performance of the economy and the tenant. The lesson here, start by smaller residential consolidated and accumulate before branching out to the more lucrative commercial properties.