Leases tend to be much longer – anything from three to 20 years – and they are quite often secured by bank guarantees, which makes them a secure investment
Rent is reviewed annually and is usually increased either by the CPI or by 4%, whichever is the greater.
Commercial tenants will also tend to maintain the property better as the look and condition of the property is important to their business and their staff. But commercial leases also have added protection for the owner in the form of make good clauses, maintenance clauses and management clauses.
The return on invested capital on commercial properties ranges between 7% and 10% net after all costs. Residential property investors must pay all outgoings and other costs, although of course this can be negatively geared. Deductible rates on commercial property, though, are higher than for residential because of higher depreciation rates.
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