Commercial property can be a very rewarding asset class. However, the high purchase prices and level of market knowledge required often make it unattainable for individual investors. As a result, many people choose to invest through a managed fund. The advantages of a managed fund can be plentiful, providing you do your due diligence and invest with a reputable company.
Australians love bricks and mortar. The majority of us are homeowners, and plenty of people back this up with a rental property.
But there’s more to property than residential housing.
Take a look around your local area. Chances are it offers a wealth of commercial property investment opportunities – anything from warehouses and shopping centres, to office blocks and even hotels.
As an asset class, commercial property holds plenty of appeal, typically offering long leases, regular cashflow, high yields, and the potential for capital growth.
However, for individual investors, commercial property can seem a daunting market to get into. How will you know which property to select? Can you afford an investment-grade property? What about managing the property and tenants? Do you have access to all the raw data you need to stay up to date with the commercial market?
If it all sounds like too much hard work, don’t worry. There is an easy way around the challenges, and that’s by investing in a managed commercial fund.
How do commercial property funds work?
The idea behind a commercial property fund is simple. You let investment professionals do all of the work involved in putting together and managing a portfolio of quality properties on your behalf.
Whether a managed fund is the right choice for you depends on how much control you want in the selection of the underlying commercial properties, and how much you want to be involved in the ongoing management of the property(s).
To help you make the decision, we look at 5 key advantages of a managed fund.
As investors, we all want to earn healthy returns without the headache of managing an investment. That’s human nature. It’s also where managed funds can be an effective and effortless way to grow wealth.
It’s not just that the fund management team takes the hard work out of selecting which assets to invest in. It also comes down to:
- Understanding market conditions when negotiating a commercial lease
- Having the experience to nurture long term tenancies to minimise vacancy rates, and
- Recognising opportunities to add value to a property over the long term.
These are all skills that an experienced fund management team brings to the table.
2. Expertise and value-add
One of the big stumbling blocks for any investment can be knowing if you’ve made the right choice.
This can especially be the case for commercial property. For all its rewards, commercial property can be a complex market with varying grades of property.
Commercial property also brings its own brand of jargon – from WALE (weighted average lease expiry) to NABERS (National Australian Built Environment Rating System).
Navigating all this takes time – lots of time. A managed property fund comes with the backing of a professional team responsible for acquiring properties, as well as the day-to-day management of the fund’s underlying assets.
The benefit for investors is a reduction in the time, research and market knowledge involved in selecting properties. Proactive managers will also add considerable value maximising the fund’s performance over time and minimising associated risk factors for investors.
3. Access to higher quality assets
Commercial property is an expensive asset, and as an investor you want the best quality property you can afford.
The problem is that outstanding properties – those in blue chip locations with household-name tenants, can be well beyond the reach of small, independent investors.
However, these assets are not beyond the reach of a managed fund with their large, pooled financial resources.
The upshot is that a managed fund is likely to give you access to higher quality properties in much more desirable locations, than if you were to buy as a direct investor.
Investing in a managed fund provides a level of diversification that most independent investors simply can’t match.
A managed fund is likely to hold a number of properties that span different geographic locations, plus a variety of sectors such as warehousing, logistics, retail and so on.
This diversification lets you spread risk across industries and markets. That matters because if one sector experiences a downturn, you still have the opportunity to leverage the growth of other sectors.
5. Reduced risk, positive cashflow
When you invest in a commercial property fund, you are required to stump up the minimum capital requirement. And that’s it. No major debt. No ongoing calls to dip into your pocket for building-related expenses. And you won’t have to offer your home as security for a commercial property loan.
In this way, a managed fund can significantly reduce the risk to the individual investor. You contribute the minimum upfront capital requirement, and that’s pretty much it.
In addition, a well-managed fund can provide investors with a secure and steady income stream derived from rent returns – in other words, a welcome source of passive income.
To learn more about managed property funds and their advantages, contact us on 08 9321 5566 or submit an online enquiry form below and one of our friendly team will be in touch.
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