5 Alternative Investment Properties
Property investment is a popular way of building wealth in New Zealand, with many citizens building a portfolio of residential properties after buying their own home. Residential property investment is seen as an easy and profitable venture, but alternative investment properties can be even more lucrative.
Expanding into alternative investment options like commercial property is a great way of diversifying a property portfolio. However, first-time investors should beware of the risks and do their research. Commercial investments can be highly profitable but are harder to understand and less forgiving should any mistakes be made.
Examples of Commercial Property
Commercial properties are widely available and come in various forms, including:
These properties come in a variety of shapes and sizes, from a single floor or suite to an entire building.
- Retail Stores
These are usually small, sole-operator premises whose tenants are small business or franchise operators. Sometimes an entire shopping centre can come on the market.
- Light Industrial Units
Warehouses and showrooms can come in a variety of sizes from a few square metres to more than a thousand.
- Heavy Industrial Premises
These are huge industrial buildings, warehouses and complexes. This covers big factories used by automotive, energy, chemical and other heavy industries.
- Development Projects
These can include major retirement or residential complexes and tourism enterprises.
Benefits of Investing in Commercial Property
Many investors avoid commercial property due to the complications involved. For those who make the effort to understand them, there are unique advantages and a simplified management process on offer.
Commercial property is often purchased with existing tenants and leases in place. In New Zealand, tenants are responsible for repairs as well as utilities, rates and insurance. This makes commercial property investment a particularly attractive prospect.
In terms of managing commercial property, owners can enjoy greater control and less bureaucracy. Key advantages can include:
- No control from outside bodies as long as parties act reasonably
- No limits to rent, bond and lease terms as long as parties mutually agree
- Bad tenants can be evicted promptly under lease terms with little or no outside interference
- Depreciation allowances are often higher than residential property for fittings and fixtures
Commercial property is also not as prone to political forces. Unlike residential property, there is no constant debate about rental prices, supply and ‘fairness’ of profits. This makes commercial property less vulnerable to proposed policy changes such as the recent advocacy for a capital gains tax.
Considerations of Investing in Commercial Property
Residential property is still a far more popular investment option because it is more ‘liquid’, meaning it can be converted into cash with shorter notice. Commercial properties are generally more expensive and harder to sell, meaning the consequences of typical risks are significantly amplified.
Would-be investors should realise that commercial property involves dealing with a different class of tenants with different expectations and behaviour patterns. There are no tenancy tribunals, meaning disputes must be settled in court. Banks typically don’t lend as much for commercial property due to the risks, typically lending a maximum of 60% to 70% of the property value.
If you’re considering investing in commercial property, ensure you have the necessary knowledge and finances. Remember that most commercial property investors are savvy and experienced. They delve into commercial property after spending years or even decades investing in multiple residential properties.
Speak to the Experts
Talk to our team of expert mortgage brokers for assistance and advice about property investment. iLender offers low 20% deposits for residential investment. We have extensive experience helping local and ex-pat investors build wealth in the New Zealand property market.
Call us today on 0800 LENDER (0800-536-337) or contact us online with any questions you have about property investment.