And the proof is all in the latest figures from the Australian Bureau of Statistics (ABS). As of June 2022, data showed that the total worth of the nation’s residential dwellings rose by $221.2 billion, which brought the overall value to $10.2 trillion — the highest on record. 

But while residential properties remain the apple of investors’ eyes, Maria Milillo, the business support manager for property management at Raine & Horne, offered that commercial property can also make “excellent sense” as the next addition to one’s property portfolio. 

Here are four reasons why investors should consider a commercial property:

1. Investment diversification

Commercial properties have characteristics and behaviour that are largely different from residential properties in many aspects, making it the perfect choice if you’re looking to diversify your portfolio.

Ms Milillo explained that the right mix of residential and commercial properties could help portfolios adapt to the shifting needs of investors throughout their investment journey.

“When combined into a diversified property portfolio, these differences can also support the evolving needs of sophisticated investors as they journey along the investment yellow brick road,” she explained.  

2. Strong income returns 

For most investors, getting strong income returns on their investment is a top priority. And according to Ms Milillo, commercial property brings this particular advantage to the table. 

“One of the benefits of owning commercial property is that leases usually run for much longer than residential property — in many cases, three to five years and longer. 

“These more substantial leases provide more certainty of income and generally higher yields than many other asset classes,” she stated. 

To add weight behind her argument, she cited the latest Raine & Horne Commercial Insights report, which revealed that commercial yields are currently ranging between 4 to 6 per cent (and in some cases higher) depending on the property type and location.

For comparison, she cited a separate report from a property data provider.  “On the other hand, CoreLogic says gross (before costs) yields on residential housing nationally are 3.2 per cent for houses and 3.9 per cent for apartments,” she said.  

3. Benefits your small business

If you own a small business, purchasing a commercial property can also offer significant value. 

“Investing in your business premises offers the security of tenure plus a chance to control leasing costs,” Ms  Milillo said. 

She stated that with interest rates at historical lows, there is an observed increase proportion of owner-occupiers in commercial property markets.

Ms Milillo also underlined the cost-benefit of owning commercial properties rather than renting one for your business. “In truth, it is now cheaper for SMEs to own rather than lease their place of business in many areas,” she said. 

4. Lower ongoing costs

Lastly, Ms Milillo noted that being a landlord of a commercial property is more cost-efficient compared with overseeing a residential property. 

“The landlord wears many ongoing costs in a residential tenancy, including repairs and maintenance. Managing these expenses can be a nuisance, lowering the landlord’s net (after costs) yields,” she explained.

By contrast, Ms Milillo pointed out that it is more typical for the tenant to shoulder the majority of the property’s regular expenses in the commercial market. 

“This means more of the rent hits the landlord’s pocket. Better still, the extra cash flow allows the landlord (a ‘lessor’ in commercial real estate) to reinvest funds to keep the shop, industrial unit, or office in good working order,” she said.

Investing in real estate is one of the most popular ways to build wealth among Aussies. As a testament to this belief, the latest data from the Australian Taxation Office (ATO) revealed that there are more than 2 million property investors in the country. 

And this end goal is no pipe dream. If you’re an avid listener of The Smart Property Investment Show, you know that there is no shortage of people from all walks of life who have achieved financial freedom (as well as long-term life goals) by investing in property. 

However, winning big in property investing is easier said than done. Oftentimes, this investment journey is riddled with pitfalls that could waste your time, money, and energy. 

So in this article, here are five most common mistakes to avoid when starting out on your investment journey. 

1. Lack of planning

One of the biggest mistakes a beginner real estate investor can make is not setting specific goals from the start. 

The simplest way to avoid this mistake is to have a plan before investing in property. If you’re buying a property for the first time, there are plenty of things you need to consider to make sure that your first venture will not tank.

When you’re on the drawing board, here are some questions that can help you get started on your investment strategy:

• What are your short-term and long-term goals? Do you want to attain financial freedom, get extra income or have an early retirement?
• What type of property would you like to purchase? Are you looking for a unit or a house? Should you buy an existing or new property? Or are you looking to get into commercial real estate? 
• Where would you like to purchase your property? Are you buying within your local area or interstate? 
• How will your first property fit in with your long-term goals? 
• What is your investment strategy? Will you rent out your property, or will you flip properties for profit? 
• How many properties do you envision having in your portfolio? 

Of course, these questions are just barely scratching the surface, as you will need to take a more holistic approach when drawing up your investment plan by taking in your financial and personal situation. But asking these questions can serve as a good starting point for your planning process. 

2. Failing to do your due diligence

When buying a car or a new phone, every savvy consumer knows it’s smart to compare different models and prices. They also ask a lot of revealing questions to determine if the purchase gives them a bang for their buck.

It’s important to understand that real estate investments require the same research method, as making data-driven decisions is one trait that most successful real estate investors share. 

Some beginner investors make the mistake of basing investment decisions on recommendations from friends and family who lack expertise in the matter.  

And while some investors do hit the books, they will not go beyond the listing information and make their decision without going the extra mile of doing their own homework.

For starters, make sure to do your homework on the following: 

• Local market trends, property market cycles, hotspots, etc. 
• Landlord-tenant laws in your state or region
• Zoning requirements
• Infrastructure
• Demand and supply 
• Strata title (If you’re buying a unit)  

Doing your due diligence in your research will ensure you make well-informed property investment decisions, so make sure to check out our Research page for reports, statistics and analysis from experts on the Australian property market.

3. Thinking short-term 

Another common mistake that new property investors make is entering the market without any inkling of the kind of returns they can expect. They also overlook the time horizon needed to reap the return on their investment. 

This mistake can be a costly one, as it could result in regrets and financial losses. With this, avoid thinking of real estate investing as a get-rich-quick scheme and look at it more as a long-term business investment that is sustainable and scalable. 

Property investment is a long-term investment, and most seasoned investors will advise you to invest your money into a property with high capital growth potential, which will pay off in the long run.  

4. Investing with your heart, not with your head

When buying your dream home, it’s understandable that your decision will be based mostly on emotion and will depend less on logic.  

However, when it comes to investing, letting your heart rule your purchasing decisions is a common mistake that should be avoided at all costs. 

Allowing emotional attachment to dictate your property buy could leave you with the wrong property, which may turn into a dud investment. Additionally, letting your emotions cloud your judgement means you are more likely to overcapitalise on your purchase, rather than negotiating the best possible price and outcome for your investment goals.

To avoid buying a property lemon, here are some tips: 

• Base the decision on data. At the end of the day, investing is all about economics, demographics and finance and not emotions. 
• Think like a tenant. If you’re planning to rent out the property, research what tenants will be looking for in a property and know the type of tenant you wish to rent to. For example, if you are looking to rent to families, look for a property in a good school zone with a safe neighbourhood and multiple bedrooms. Additionally, don’t forget to research local rent prices to know what tenants might be willing to pay.
• Avoid properties that require extensive maintenance. This is where keeping a clear head will be handy, as a buyer who is in love with a property tend to overlook its flaws. Always keep an eye out for major repairs or renovations when inspecting a property. Cracks in walls, damp basements and signs of pests are red flags that indicate the home will need maintenance and may require more money than you hope to spend.
• Invest based on your goals. As we’ve already mentioned, any property you purchase (whether it’s your first buy or any property down the line) should align with your investment goals. And while estate agents (or your heart) may try to persuade you to buy a property, if it’s not in line with your investment strategy, remember to stick to your long-term goals.

5. Underestimating expenses 

In an ideal world, an investor’s only expense would be the mortgage. But as any seasoned investor would tell you, this is just the tip of the iceberg.

On top of the mortgage payments, beginner investors must also take into account maintenance costs, repair bills, and strata fees, along with other property taxes and insurance fees. And this is not yet the exhaustive list! 

When investing in real estate, it’s a good idea to create a maximum limit and set aside a certain amount of your money for emergencies and unexpected costs associated with holding or managing a property. 

Additionally, make sure your investments are financially sound. If you’re planning to rent the property, make sure to crunch the numbers for your cash flow and don’t forget to make the necessary preparations for when tax season comes so you can collect the tax deductions that are available to property owners.  

Disclaimer: The information provided in the article is general and should not be perceived as personalised investing advice. It is highly recommended to consult with financial advice from a suitably qualified adviser.

If you want to learn more about the latest industry expert insights on the property market and other general information that will help you along your investment property journey, check out our amazing podcasts. Also, make sure to check our News section for the latest property market reports, insights, news and useful tips and strategies for investors. 

Managing director of MCG Quantity Surveyors Mike Mortlock stated that with interest rates rising, construction costs surging, and increasing cost-of-living pressures becoming a heavier hip-pocket burden, investors should take steps to “get savvy” about the status of their financials.

“Our research shows investors are becoming more prudent about their financial arrangements, and their level of engagement is only set to ramp up as fiscal pressures force us all to look at ways of maximising our bank balances,” he stated.

He also urged property investors to take a sooner-rather-than-later approach when dealing with their real estate investments in these “tough economic times”.

“If property investors were intending to carry out some of these actions on their investment, but hadn’t got around to doing them yet, my suggestion is that they tackle them immediately,” the tax expert stated.

“Making these easy moves now will maximise your tax return – a much-needed boost given challenges around the rising cost of living,” Mr Mortlock added.

Below are five ways investors can boost the tax return on their properties while increasing their overall value:

1. Tackle small repairs and maintenance 

Mr Mortlock stated that tackling niggling repairs and maintenance means immediate money in investors’ pockets, as works carried out now are instantly claimable.

He explained that most investors put off smaller upkeep works as they focus more on the bigger renovation projects.

Citing MCG Quantity Surveyors’ latest 1000 Assets Report, Mr Mortlock said an estimated 30 per cent of all investment properties undergo renovation work, with the cost averaging around $25,000 to $30,000 per property.

But the expert said that even small works could deliver a benefit. “I’m talking about those minor works you’ve been putting off. Any repair – no matter how small – allows you to claim the cost of materials used to tackle it,” he said.

Additionally, Mr Mortlock explained that labour costs can also be claimed if you work with a contractor.

“Works can include landscaping – something that landlords may be able to carry out themselves with the tenant’s permission. You also get to claim for costs incurred on pruning, cleaning, gardening and lawn mowing,” he said.

He reiterated his call for investors to take on these works immediately. “Now is the time to act because any costs you incur in June are 100 per cent tax deductable in July. Miss this window of opportunity and you’ll be waiting another year to get the benefit,” he explained.

2. Prepay your loan interest

Investors who have the means to pay their annual interest charges in advance should consider doing so.

“Aussies have managed to boost their saving throughout the pandemic with increases in their offset accounts and savings,” he explained.

“I’d suggest devoting some of that treasure chest toward pre-paying your interest bill for the coming year. The sum you pay is immediately claimable against your 2020-21 tax return,” the expert advised.

He said that while the advance payments won’t insulate your pockets from the looming rate hikes, they will give you a leg up come tax time.

“Interest rate rises seem inevitable this year. However, if you have the means, prepaying a bigger chunk now will give you room to deal with increases as the year progresses, while boosting your tax return immediately,” he said.

Mr Mortlock also advised investors who also have redrawn equity from their investment property mortgage to ensure that the funds were used for investment purposes to avoid getting in trouble with the Australian Taxation Office (ATO).

3. Secure a depreciation schedule

If you haven’t already organised a depreciation schedule, Mr Mortlock suggests you pick up your phone and schedule one today.

He explained that depreciation schedules prepared by suitably qualified professionals give hugely advantageous tax-deductible depreciation to your property’s fixtures, fittings and finishes.

And while there are still investors who are still not well versed with this cashback-boosting strategy, he said that more are becoming aware of this tax advantage.

“Fortunately, investors are becoming more aware of their advantages. Our most recent 1000 Assets Report revealed the amount of time between settlement and ordering a schedule fell to around eight months in 2022 – more than half the time it was in 2016,” he revealed.

Some investors might frown at the hefty depreciation schedule costs that could go up to hundreds of dollars, but Mr Mortlock said that it could “deliver thousands back to the landlords”, making it a worthwhile investment.

4. Purchase items for your property 

Mr Mortlock said that while having items fully installed before the end of the year might be a challenge, landlords should instead focus on buying freestanding items that contribute to the rent return.

He advised buying items that can be quickly installed, such as light fittings, rugs, tiles and carpet. Other items he listed included pot plants and other garden ornaments, freestanding lamps, and appliances such as a new chest freezer.

“All things that will be used by the tenant, help boost the rent and can be deductible,” he stated.

For items worth $300 or less, investors can claim the total cost on the tax return.

For those with more money to spend (and if time permits), he advised considering installing equipment priced under $1,000. “[Deduction] rules make this type of outlay late in the financial year extremely lucrative in terms of tax,” he explained.

5. Work with your advisers

Lastly, Mr Mortlock advised investors to check in with their respective property advisers and to do it before June ends.

Mr Mortlock said property managers keep a running tally of deductible repairs and upgrades as part of their annual rental statement, and this will be required reading for your accountant.

“In addition, your property manager will provide advice on works they can coordinate in the coming week or so to help improve your deductions by year’s end,” he said.

The expert also reminded investors that advisers’ fees are tax-deductible and to include professional costs as part of their tax return this financial year.