Managing cash flow as a property owner can be challenging and many fail to get their strategy right before signing on the dotted line. Commercial property can yield a good, solid cash flow provided you know how to manage the different elements.

It is important to consider the following when looking to lease out a commercial investment property: 

1. Think of your investment as a business: 
When leasing out and managing your investment property it is helpful to think of it as a business. Many commercial investors rely on payments from tenants to cover outgoing costs such as loans, bills and expenses, so it is important to coordinate these payments to ensure a steady cash flow so that billing deadlines are met. 

In addition, consider what council rates you will need to pay (affluent areas are likely to be higher), whether your property will require large amounts of money spent on maintenance projects, that you are covered by insurance and that you minimise loan repayments where possible. 

2. Commercial property has the potential for higher rental returns: 
Commercial property can actually provide great cash flow with the potential for much higher rental returns than residential property. Residential properties may have a strong capital gain and the ability to generate cash upfront, however, commercial property is generally a stronger long-term investment as it generates a higher yield over time. 

Each year commercial property owners are likely to receive higher annual returns (5% to 10%) than what would be gained through a residential property (3% to 4%), however, it’s important to understand it is a long-term game and you will need to be willing to wait it out to reap the rewards. 

3. Finding the right tenant is vital: 
Finding the right tenant (or tenants) will help ensure consistent cash flow. When choosing, or searching for, a tenant it is important to think long-term as a tenant who accepts a longer lease will help minimise vacancy periods. As commercial properties are leased to businesses, there tends to be much stronger tenant stability. Commercial leases generally last between three to 10 years, while a residential tenancy can turn over every six to 12 months. Tenants have sometimes invested a lot more into a commercial property and therefore would prefer to stay in the one location for longer. 

If you foresee a tenancy coming to an end, be sure to start looking for another well in advance to minimise vacancy. 

4. Claim depreciation:
Claiming depreciation is another way to improve your investment property cash flow. Although simply a tax deduction, depreciation allows investors to account for the wear and tear of their properties and assets over time. This can include anything from carpets through to air-con and heaters. By claiming depreciation allowance, you reduce the amount of income tax you need to pay, leaving more cash in your pocket each year. Keeping on top of both small and larger claims will help you achieve an optimum cash flow.

For more information on how we can help you manage your property, today on 03 9654 2311.