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With the strength of the residential real estate markets in Melbourne and Sydney, many investors associate ‘property’ with ‘residential’ while overlooking the opportunities that commercial assets can offer.
For baby boomers look to secure their future retirement income, commercial real estate investment can be an excellent option. Offering a consistent income stream and a low-risk opportunity for long-term capital gains, there are five key factors that underpin commercial real estate investment syndication as the most advantageous retirement investment option.
One benefit of investing in commercial real estate is that income can be significantly higher than residential equivalents. While the 30 year returns on residential and commercial property historically are similar, a far greater proportion of commercial returns are due to income rather than capital growth. This combined with longer and more secure commercial leases, make investing in the class particularly attractive for people looking for a secure, tax effective income stream in retirement.
While commercial assets can be significantly more expensive than residential alternatives, there are investment products that make participation in assets of this kind possible. One such product is a Real Estate Syndicate, also known as a Real Estate Investment Trust.
Before jumping into a residential investment, it is worth considering how a commercial property syndicate may better suit your wealth creation, risk reduction or diversification investment strategy. Peak Equities can answer all your questions about how a commercial property syndicate works.
A particularly attractive feature of investing in commercial real estate is the stable income stream, generated from long term secured leases, with lease terms for commercial properties generally ranging between 3 and 10 years. Additionally, and unlike most residential leases, commercial leases include annual fixed rental increases or a fixed amount greater than CPI plus a flat margin. Such agreements allow for future financial planning and certainty.
Commercial properties are often occupied by established businesses, ASX-listed or otherwise who respect and take care of their rented premises. By contrast, the high turnover of renters in the residential leasing sector leads to greater chance of property damage, vacancy, re-leasing complications and day to day hassles.
When considering retirement investment options, a commercial real estate syndicate can reduce the admin and management burden, lower risk and enhance the stability of retirement income.
In a volatile market, income streams associated with commercial property investment generally remain stable compared with residential investments, due to the length of lease agreements. When a downturn occurs, underlying property values can be adversely affected across both commercial and residential sectors but, income levels will be slower to move because rental income does not change in the short term.
Another reason why commercial investment funds can be less risky during a downturn is that they are subject to stringent compliance, reporting and transparency requirements and decisions are made on the basis of detailed research and conservatism.
As a compliment to direct equities (shares), residential property and other investment grade asset classes, commercial property is a useful way to reduce overall risk and increase security through diversification.
The rising tide of inflation poses an ongoing challenge to maintaining the underlying value of retirement savings, while still generating sufficient retirement income. Diversification, strong underlying value, risk minimisation and low gearing are all useful strategies in pursuit of this goal.
In many instances, commercial property syndicate investments, particularly those offered by Peak Equities, can achieve many of these goals.
Another reason why commercial real estate can be a hedge against inflation is that, as living costs and day to day item prices increase due to inflation, the increases over time tend to extend to higher rents and rising land values. Historically, commercial property values have appreciated at a greater rate than inflation.
For these reasons and more, commercial real estate investments are worth considering to preserve and enhance security in retirement.
Considering commercial property returns in recent years, strong economic conditions overall and historically low-interest rates (expected to remain low in the short-medium term), the outlook for commercial real estate is positive. Accordingly, for retirees, this is an asset class worthy of consideration when trying to achieve low risk, stable portfolio growth and strong income.
We are a Commercial real estate investment company that delivers 8.5%-9% income p.a. (paid monthly) while focusing on security and conservative capital growth, often increasing the overall annual return to 11% or 12%.
For the best advice regarding commercial property investment for retirement income, contact Tom Borsky or David Borsky at Peak Equities today by calling (03) 9863 8380 or email email@example.com.
September 19, 2019