There is a big difference between investing in residential property and commercial property. The latter offers more flexibility in leasing and income strategies, so it suits the more experienced investor over the longer term than those just starting.

In commercial property, you can buy a property of a selected type and then optimise the tenant mix over time to make income growth more possible and strategic.

The opposite is true in residential property because you work with single tenants on shorter-term leases. Common law primarily impacts commercial property, whereas residential tenancy legislation will impact individual tenancies in residential property.

For new investors purchasing property, residential is likely to be the entry point, and later, commercial property is expected to be more attractive due to the income and capital gain potential.

Aspects to Watch in Property Investment

Here are some factors to consider when investing in commercial property today. When referring to commercial property, we mean retail, industrial, and office-type assets; they are all different and have different attraction factors.

• Property type: Given the versatility of property ownership and the property cycles, some properties will be more attractive as investments or have different levels of potential than others. Choose the property types that you understand or can relate to. Generally, retail property is more complex in operation and ownership. At the other end of the scale is industrial property, which is more general and simpler to understand.

• Location: In most towns or cities, you will find commercial activity and investment areas. Every location will have benchmarks relating to the supply and demand of property, prices, rents, and occupancy. Choose the site that you understand, and then drill down into property availability.

• Supply and demand: This is where many property investors like to play with property potential. The zoning of a property will change in a town or city based on requirements and the growth of the business community. Many property investors will purchase an asset with a view to the future and how things could be appreciated with a change of use or value over time.

• Tenant mix: The tenants on the property should be reviewed for potential stability and improvement in occupancy. That is where cash flow comes into it. Compare the property income stream with other assets of similar type locally. How aligned are the rents to the market rents in the area for properties of that particular type?

• Income streams: There are different ways of recovering income for a property. The base will be rentals paid, but then you have property outgoings to consider. How many outgoings for the property can you recover from the tenants? Review the rates, taxes, repairs and maintenance, service costs, energy, water, and insurance. It is wise to have a budget for the process so you can go through the numbers at the start of a financial year and set benchmarks.

• Improvements: Review buildings to assess the lifecycle of the property. Look at the structure, the existing building codes, compliances, and safety matters. Then, look at the essential plant and equipment to determine how many more years of life may still be available in the asset.

• Market changes and pressures: Some property precincts, towns, or cities change property market trends. Retail properties are an excellent example of that. Larger CBD-based stores are now struggling to attract trade or customers. That is because of the internet and how customers tend to shop locally.

These simple steps will help you find and reach more property opportunities in your location. When you select a group of properties, you can then do your research and decide if you have potential as an investor in the area.