Six ways to invest in commercial property

Investing your hard-earned funds into commercial property can be very rewarding. You should look upon this as a strategic process, which you’re able to approach in many ways.

Outlined below are several options available to you when investing your money in a commercial property.

Option 1 – Listed property trusts

This is probably the easiest way to invest in commercial property; and involves little more than you opening an account with a stockbroker, depositing some money and then placing an order.

Option 2 – Property securities

This option consists of a managed fund that invests in a basket of listed property trusts. They are especially suited for beginners, who are unsure about which property trusts might be the most appropriate.

Option 3 – Public property syndicates

This process starts with an application via a product disclosure statement and generally requires you to commit a minimum of $10,000. You are then normally locked into the investment for the duration of the syndicate – which may be up to 10 years.

Option 4 – Mortgage funds

These are managed funds that lend money using commercial property as security. They generally offer the investor returns that can be a higher than a bank term deposit or cash management account; but there is no capital gain from this type of investment.

Option 5 - Mezzanine finance

Mezzanine finance is the provision of funding for commercial property developments.

As the name suggests, it involves providing funds between the developer’s own equity and that allocated by mainstream commercial lenders. As such, it carries a far higher degree of risk – and the potential for higher returns – than regular mortgage funds.

Option 6 – Direct property investment

Direct property is for people who have done their research on the market. It is also possible to buy into direct property through a private syndicate, which we’ll cover in a later article.

Either way, direct ownership of property offers you the greatest level of control.

Bottom line: The option that you ultimately choose will come down to what we affectionately call your “threshold of insomnia”. In other words, you ought only invest in something that won’t cause you to lie awake at night worrying.

You need to be totally comfortable with the level of control (or lack of it) that you have. And you should always seek to learn as much as possible about the option you intend to pursue.

And if you do have difficulty in finding the necessary background information, then you should cross that option off your list – however attractive it may initially appear.