Have you considered these alternative commercial investment classes?
By Michael Ajaka, Director, Ray White Commercial NSW, Western Sydney
In Sydney and all over Australia commercial investors are spoilt for choice. There are properties available to suit any nearly any budget and investment style, outside of your conventional office, retail and industrial premises.
However, sometimes to find something that fits your needs perfectly you need to choose a slightly unconventional asset class. Child care centres and service stations are two such asset classes, both of which have considerable potential if you choose well.
Ray White research shows that in 2016 $120million worth of childcare properties were sold in NSW alone.
Child care centres
Ray White research shows that in 2016, $120million worth of childcare properties were sold in NSW alone. The majority of these sales were to lower level investors, however, there are assets available at the higher end as well.
Despite massive demand, these assets are still available on the market, with some selling for as little as $1.6million. They’re usually safe and smart investments because tenants will often be large or even national brands and your lease could be as long as 30 years, reducing your risk of vacancy and income interruption.
Your tenant will also usually be responsible for all child safety compliance additions that the property needs and many other outgoing costs. That means if you find a reliable tenant and a well-suited property you could find yourself an easy set-and-forget investment.
Your lease could be as long as 30 years, reducing your risk of vacancy and income interruption.
Similar to child care centres, service stations had a near-record breaking year – over $427million in stock changed hands in NSW last year. This indicates that service stations could be easier to come across then child care centres.
They’re ideal investment assets because, just like child care centres, they’re usually tenanted by large national companies that prefer longer leases of 10, 15, 20 or even 30 years. Because of the size of the tenant’s enterprise rent collection should never be a problem, and your investment income will remain solid.
What’s more – such assets often have 2-3 per cent annual rental increases written into the lease so your rental income and perhaps even the value of your asset should only go up. Again, your tenant may be responsible for all maintenance costs and most other outgoings (such as land tax).
Service stations and child care centres are generally seen as low-risk investments.
Service stations and child care centres are generally seen as low-risk investments. For that reason, banks are often more inclined to lend to purchasers with the intention of buying them, as opposed to development and other more risky investments.
However, no investment is without risk. It’s what you do to minimise that risk that will really make the difference. Just like with any commercial property you should select assets in easily accessible locations, consider the competing businesses nearby and always select a well known company as a tenant if possible.
If your property ticks all of those boxes you may find yourself on the fast track to investment success. In that case, a service station in NSW could yield north of 6 per cent, whereas child care centres could return on average from 5.5 – 7 per cent net of outgoings – solid returns that make these assets great long-term, low maintenance investments. Yields differ across Australia but the fundamental essentials of these investment classes remain the same.
When you’re ready to invest, get help from an experienced professional when selecting a property, and you’ll minimise the risk involved even further and increase your chances of success.