Article by Damian Collins, Chairman of Westbridge Funds Management
Many of us look forward to retirement as a time to travel, relax and unwind while enjoying freedom from the stresses of working life.
Of course, creating and maintaining this sought-after lifestyle doesn’t come without a cost. It calls for financial resources – often in the form of regular income to replace the once-regular cashflow provided by wages you earned or a business you ran.
This is where commercial property can make a valuable difference to your wealth creation plan.
Below, I explain why commercial assets deserve consideration in your investment portfolio as you approach retirement.
Healthy, regular yields
Just like residential property, commercial property can generate two types of returns – regular income in the form of ongoing rent, and potential for capital growth.
A key point of difference, however, is that commercial property typically generates much higher rental yields than the residential market. This is largely due to the structure of who pays the expenses and perceived higher vacancy risk with commercial assets.
In the commercial sector, it is normally the tenant, not the owner, who pays for many of the property’s outgoings. In addition, commercial leases tend to be far longer than residential leases, often spanning upwards of five years-plus.
Commercial property can present the risk of longer vacancies. However, if you select the right tenant and manage the property well, the upshot is that it can also deliver a highly valuable source of cash flow. This can hold key appeal for investors seeking that all-important passive income, which we know becomes an increasing priority as we head into, and through, retirement.
That’s why I am a firm believer that while residential property is a great place to begin your investment journey, commercial property is where you want to end up.
Property funds can provide greater accessibility to commercial assets
When it comes to commercial property, there are several reasons why investors often overlook this asset class.
The first and most obvious is the higher entry price of commercial properties. In most markets, it’s rare to find high-quality commercial assets for sub $5 million – and even then, most investors wouldn’t want to invest such a large amount of capital into a single investment.
Secondly, there’s also the perceived complexity of managing these properties and overseeing the often-varied needs of commercial tenants.
This is where the appeal of managed property funds comes in. A property fund allows investors to pool their capital, enabling the purchase of high-quality commercial assets, often leased to blue-chip tenants such as large multinationals.
The syndicated structure of a fund means the capital requirements for individual investors are far lower than buying commercial property directly. As a guide, investors can purchase units in some of our funds at Westbridge Funds Management from as little as $50,000.
A valuable source of diversification
Along with regular income and a modest capital outlay, property funds can also be an important source of diversification.
Investors can choose to spread their capital across various single-asset funds in line with their views and preferences or opt for a fund with multiple underlying properties for instant diversification.
In this way, investors can spread their risk exposure across multiple investments and tenancies, rather than relying on the individual performance of a singular asset.
A hands-off approach
Beyond their potential for income returns, property funds have the added advantage of making life easier for investors.
The fund manager is responsible for overseeing everything from the selection of assets, through to ongoing management, lease negotiations and the coordination of distributions to unitholders. This level of professional management holds plenty of appeal for retirees who, quite rightly, are usually more interested in making the most of their leisure time than dealing with the stresses of a complex portfolio.
If retirement is on your horizon, I encourage you to consider whether commercial property as a wealth creation option is suitable for your circumstances.
While not suited to everyone, commercial assets – especially when offered through a fund – can be an incredibly valuable option in providing investors with regular income without the complex responsibilities that often go hand-in-hand with direct property ownership.
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Westbridge Funds Management has been helping investors grow their wealth through syndicated property funds for over 20 years. To learn more about our investment offering, join our mailing list to register for notifications of our future fund opportunities. This article is general information only and does not constitute financial or investment advice. Investors should make their own enquiries and / or seek advice from a licensed financial adviser before making any investment decisions as to whether commercial property or a commercial property fund is right for your circumstances.