Commercial property is a proven long-term investment, and the option to own your premises can be an excellent business decision, delivering certainty of tenure, diversification and tax-friendly capital growth.
While we tend to associate ‘commercial property’ with large office blocks and shopping malls, there is an abundance of small commercial properties with a far more accessible price tag. Indeed, as a rule, it’s often possible to secure a commercial property for less than the price of a residential unit in the same area. That said, prices will vary according to several factors including the size and quality of the building, and of course, location.
On the issue of location, it’s a case of horses for courses. Premier retail properties for example, are those located in or near traditional high traffic flow areas, and/or established shopping complexes offering an abundance of parking and public amenities. For an industrial business, on the other hand, the proximity of a warehouse or industrial unit to transport hubs is regarded as highly desirable.
In the same way that Australians make home ownership a goal, one of the pluses of owning an office, warehouse or shop is that you are building equity rather than paying the lessor’s mortgage. In addition to diversifying your business investments, a commercial property also offers certainty of tenure for your business.
Moreover, business owners are often surprised to learn that owning a commercial premise can prove more cost-effective – and certainly tax-effective. To provide a rough idea of how the numbers stack up, let’s assume an owner purchases a commercial property costing $300,000. We’ll also say that a 20% deposit ($60,000) is paid, leaving a principal of $240,000. On this basis, at an interest rate of 4%p.a., the annual interest charge would be $9,600, which is normally fully tax deductible as the premises is being used to generate taxable income.
Everyone’s circumstances are different, so I would also suggest you seek individual financial advice. But in general terms, the owner of a commercial property is actually further in front because he or she may be entitled to claim valuable non-cash tax deductions including building allowances and depreciation of fittings and fixtures.
In addition, over time a quality property will appreciate, potentially forming the foundation of a decent retirement nest egg – something many small business owners tend to overlook.
If you are considering buying commercial property, contact your nearest Raine & Horne Commercial agent for more information.