An article on the Financial Review talks about the SMSF investors’ growing penchant for commercial properties. For the uninitiated, residential and commercial properties are treated quite differently in the SMSF world. SMSF owners are either purchasing their own office or utilizing expert knowledge to buy a different one.
Expert professionals looking for commercial properties
Experts from different walks of life are looking to snap up properties by setting up Super funds for themselves. There is a tendency to believe that “this is something you can control and you can’t be kicked out of”.
Multiples of average income
Looking through the lens of “multiple of average income” and “historic prices”, commercial property investments seem to be much better placed than blue-chip ASX stocks and residential properties. If you buy a suburban commercial space just ensure that you are not inviting the wrath of the local council.
Difference between commercial and residential investments
The article cites differences between the commercial and residential investments. The former is determined by the term and the yield and in case there is no tenant, there is no yield either. It may be useful to examine the alternative tenant test. This delves deep into where income may be generated from in the event of expiration of the tenancy agreement. A long term tenant who is receptive of the cause of tenancy can work like an annuity.
You can read the original article here.
Keep a few things in mind
All is good but the caveats still remain and very much so. While investing in business real estate, it is important to abide by the in-house asset rule (do not buy assets from people close to you) and arm’s length transaction (do not involve yourself in a purchase where the terms are more lenient than what they would have been had it been an arm’s length transaction).
The outcome of the Financial System Inquiry is such that we may be looking forward to tightened limited recourse borrowing arrangement structure from here on. It will worth pondering over these developments.
