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Raymond Pecotic: Five red flags for self-managed super investors shifting focus to commercial property
Raymond Pecotic lists five red flags for self-managed super fund investors considering commercial property after residential borrowing
Key points
- Banks generally require a lower loan-to-value ratio for commercial property than for residential property.
- Yields of about 6 per cent can be achievable, depending on the property, tenant, lease and market.
- Commercial property capital growth may not always match residential, with some Australian office properties seeing weak or negative growth.
Why it matters. Investors shifting SMSF money from residential to commercial property may need more upfront equity and cash reserves, as higher yields could be offset by longer and costlier vacancies.
Raymond Pecotic, writing in an Australian financial commentary, says SMSF investors shifting from residential to commercial property face five key differences. Banks typically lend up to about 70 per cent of a commercial property's value for an SMSF, meaning a deposit of roughly 30 per cent plus transaction costs. Yields of about 6 per cent can be achievable, but tenants may leave, requiring fit-out contributions or rent-free periods.
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Raymond Pecotic: Five red flags for self-managed super investors shifting focus to commercial property
When one door closes, investors inevitably start looking for another. For some SMSF investors, that door could be commercial property. Here’s five thing to know before you jump in ... If you listen carefully, you might just hear the screeching of the handbrake being pulled on the Australian residential property investment market. The changes announced in the May Budget — and the subsequent deal with the Greens to ban future borrowing arrangements for residential property inside self-managed superannuation funds — have completely shifted the sector. When one door closes, investors inevitably start looking for another. For some SMSF investors, that door could be commercial property. Office, retail, industrial and other forms of business real property can be an attractive addition to a superannuation portfolio, with potentially higher yields, longer leases and tenants paying many outgoings. But commercial property isn’t residential property with tenants in suits or high-vis overalls. It is a different asset class, with different opportunities and different risks. Here are five things worth understanding. 1. You’ll need more money upfront The first difference is one the banks will make very clear. Commercial property generally requires a lower loan-to-value ratio than residential property. For an SMSF, investors may be looking at borrowing, at most, about 70 per cent of the propert.