Highway-frontage properties in retail, fast food supplies (e.g. McDonalds), service stations and showrooms are usually stable businesses with good turnover. The tenants generally take out reasonably lengthy leases and the properties subsequently offer better rental returns.
Land increases in value, buildings depreciate in value
Before investing in any property, it is important to ensure the growth in the land value will offset the depreciation of the building over time. For example, a residential strata unit in a multi-level apartment building is only entitled to a very small part of the land. In effect, this means the purchase price of the total property is mainly composed of the cost of the building rather than the land component. Understandably, over time, the strata residential unit will struggle to increase in value, as the depreciation of the building offsets any increase in the land.
Investing in commercial and industrial property works the same way in terms of preservation and growth in value. However, the building on the land generates cashflow to assist us in owning the land.
Our preference for small commercial property is:
- Have a modest construction, i.e. not too young so the bulk of the new building depreciation has been depleted, but not so old as to cause maintenance issues; and
- Can be easily leased, so visibility on a major road or highway location is preferable.
Speak to your DomaCom accredited adviser, or participate in the following public crowdfunding campaigns for residential property.