1. Higher Yields: Commercial properties generally offer higher rental yields compared to residential properties, which results in more attractive rental income for investors.
2. No Residential Tenancy Tribunal: Disputes related to residential tenancies are typically handled by the Tenancy Tribunal in New Zealand, whereas commercial tenancy disputes are resolved through negotiation or litigation, providing a different legal framework for conflict resolution.
3. Negotiable Lease Terms: Commercial lease agreements are more flexible, and negotiable compared to residential leases, allowing landlords and tenants to tailor terms that suit their specific needs.
4. Tenant Pays Outgoings: In commercial properties, tenants are responsible for paying outgoings such as utilities, maintenance, and property taxes, relieving landlords of some financial burdens associated with property ownership.
5. Longer Leases: Commercial leases tend to have longer terms compared to residential leases, providing more stability and predictability for investors.
6. Higher Quality Tenants: Commercial tenants, especially established businesses, tend to be more reliable and responsible compared to residential tenants. They have a vested interest in maintaining the property and are more likely to pay rent on time, which can reduce risks for property owners.
7. Annual Rent Increases: Commercial leases often include fixed annual rent increases, typically around 2-4% or linked to the Consumer Price Index (CPI – approx. 5.5%) This can provide investors with predictable income growth over time.
8. Soft Ratchet Clause: Most leases in New Zealand, are drafted on the Auckland District Law Society (ADLS) lease, which includes a soft ratchet clause.
The standard ADLS Deed of Lease clause for CPI rent reviews includes a soft ratchet, and states that for a CPI Rent Review the rent may never fall below the amount of annual rent payable at the commencement date of the current lease term.
9. Diversify: Commercial investing provides you the opportunity to diversify and spread the risk. By holding various commercial properties with a mix of tenants and sectors in your portfolio, you will be better placed to mitigate risks if either of these markets or tenants take a fall.
10. Tax Benefits: Commercial property investors can benefit from tax advantages, such as depreciation deductions, which can help reduce taxable income and increase overall returns on investment.
11. Accessibility: Commercial properties are available at various price points, making them accessible to a wide range of investors. Whether you are looking to invest in a small warehouse or a large shopping centre, there are opportunities to suit different investment budgets and preferences.
These advantages highlight the potential benefits of commercial property investing in terms of income growth, risk mitigation, tax advantages, flexibility in ownership, and accessibility to a diverse range of investors. However, it's important for investors to conduct thorough due diligence and seek professional advice before making any investment decisions in the commercial real estate market.
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