Commercial assets key for cash-flow investors
A recent article by The Australian Financial Review has highlighted the importance of asset diversification for investors focusing on income.
Drawing on analysis from chartered accountant, William Buck, the article explains that whilst residential investment represents a strong asset class for capital growth, the net rental yields from these properties are often not enough to sustain investors throughout retirement.
Residential properties typically offer net returns of around 2.5%-4% per year, but this can be lower when ongoing costs such as renovations and repairs are taken into account.
Diversifying a good yield play
Managing Director of Mair Property Funds, David Ellwood, says diversifying into commercial property presents a key opportunity for investors seeking to increase the cash-flow of their portfolio.
“Whilst residential property constitutes a strong asset choice for investors hoping to accumulate wealth through capital growth, these high growth assets often present lower rental yields,” he said.
“Investors seeking to generate a passive income stream as part of their retirement strategy will need to look towards diversifying their property portfolio with income-producing assets, and commercial properties certainly represent this opportunity.”
Commercial properties typically generate yields of 7-9% per year, offering investors higher income returns than the average residential investment.
Mr Ellwood says the long-term leases often associated with commercial assets are also a major drawcard for prospective investors.
“Commercial rental properties typically offer lease terms from five to ten years, and as such are seen as a stable asset choice for investors seeking that steady stream of rental income”
Syndicates providing easier access to commercial properties
Whilst many investors recognise the importance of diversifying their investment portfolio, Mr Ellwood says investors are often deterred by the cost of high value commercial assets.
“High quality commercial properties are often priced upwards of $5 million, which may not be a financially viable option for the typical investor,” he said.
“This is where options such as commercial property syndicates and trusts can provide investors more affordable access into the commercial sector”.
Mr Ellwood explains that syndicates can also play a fundamental role in helping investors further diversify their property portfolio.
“Due to their lower cost requirements, syndicates give investors the opportunity to allocate their investment funds into different assets, and also diversify their portfolio into different industries within the commercial sector,” he said.
“This can be pivotal in helping investors protect their cash flow and mitigate risk, but it also puts investors in a great position should one of these sectors or locations experience substantial growth”.
Mair Property Funds holds a number of property trusts incorporating both retail and industrial assets, and has recently launched the MPF Diversified Property Trust No.2 which currently includes a retail property in WA and an industrial facility in Crestmead, Queensland.
Mair Property Funds is a WA-based investment company specialising in the acquisition and management of commercial property though unlisted property trusts. If you would like to know more about our latest projects, please visit our investments page or sign up to our quarterly newsletter for updates on the latest news from MPF.