Industrial property is quickly emerging from the shadows of residential property as a secure investion option with excellent growth in recent times, an important cornerstone for any balanced portfolio.
It’s secret for solid cash flow and strong capital growth is no longer a mystery to the average investor, as more and more buyers, both big and small are jumping in to the industrial market. Here are some of the secrets revealed.
Longer Term Leases: The standard commercial lease runs for a 3 year term. Most tenants also request an option to extend at the conclusion of the lease e.g. 3 yr + 3yr. This provides long term security from rental returns and yearly increases that cover the cost of inflation. Compare this to the standard residential lease that has either a six or twelve month term.
Net Lease Terms: Commercial lease agreements require the tenant to pay all outgoings. This generally includes council rates, body corporate fees, water rates, land tax, legal fees on the lease, as well as electricity, gas, telephone and internet set-up and usage fees. With these expenses borne by the tenant, the gross rental return becomes your net rental, delivering much higher returns.
These first two points ensure that cash flow generated through rental is profitable and consistent over a sustained period. Stepping off the residential rollercoaster and onto the industrial freeway makes for smoother drive on your investment journey.
Fixed Rental Increases: With a fixed annual increase written into most commercial lease agreements, the investor can rely on steady growth on their return, thereby keeping pace with inflation and market forces. As well, budgeted rental growth is considered and asset if the property is ever sold.
Strong Capital Growth: Since most industrial properties start off as a simple structure with minimal improvements, the tenant would normally need to inject capital to create fixtures and additions to create a suitable office, warehouse, assembly or manufacturing facility. This means that at the conclusion of the lease, the premises’ value will, more than likely, have risen substantially. Add to this the current growth rate of land values in your preferred market place and your investment is quickly adding wealth to your portfolio.
Less Intensive Property Management: Since the tenant is responsible for handling the outgoings and the lease term is much longer than a standard residential lease, the introduction to industrial property is a less daunting prospect for the first time investor. As the lease draws closer to expiry (within six months of completion) the owner can commence prospecting for a tenant, by either renegotiating with the existing tenant or advertising for a new one. With plenty of lead time, the risk of vacancy is lessened.
Entry to the Industrial Market is Affordable: Another appealing aspect of industrial property for small and first time investors is that is within reach of most investors budgets. It is quite realistic to find a brand new unit for less than $300,000. With access to superannuation funds, home and business equity and attractive finance packages for commercial loans, many more investors are becoming attracted to the industrial market place. The accessibility and affordability are great attractions. The range of prices for quality industrial property allows a greater choice of investment options.
Fewer Ongoing Maintenance Issues: In strata title properties, as most investor owned industrials are, the Body Corporate will manage and arrange for the regular maintenance of the property. The Sinking Fund incorporated in the monthly Body Corporate fees budgets for longer term maintenance such as re-painting and structural repairs. For the property owner, another potentially time consuming and costly task is avoided.
A Buoyant Market: The worldwide resources boom, of which Australia is a significant supplier, has created an amazing increase in industrial business opportunities. Coupled with the growing migration rate in SE Qld, the demand for lettable industrial premises is continuing to escalate. Gold Coast property of all descriptions have reported significant and sustained increases over the past few years producing an enticingly profitable opportunity for property investors. This makes the best time to enter the market NOW.
