Investing in Shares vs Commercial Property - Which is Best?

Whether you’re a seasoned investor or you’re starting out on your investment career, there are plenty of avenues for you to explore, and you’ll soon find yourself weighing up the allure of investing in shares vs property investment.

Today, and to help make this decision easier, we’re going to take a closer look at the pros and cons of investing in property vs shares.

Pros & Cons of Investing in Commercial Property

Commercial property investment is often considered a safer route than share investments, but why is this? Let’s start by exploring the benefits and disadvantages of investing in commercial property.

What Are the Benefits of Investing in Commercial Property?

There are many benefits to investing in commercial property, and this is what sets it apart from shares as the more attractive investment opportunity.

High Rental income

One of the biggest benefits of investing in commercial property is that it offers a higher rental income, especially compared to residential property. This is because lease agreements with businesses typically last for longer periods and have a higher rental payment agreement, offering stable and higher returns in the process.

Potential for Appreciation and Capital Growth

Investing in property based in a strategic area, such as close to business districts or within shopping centres, means that you stand a very good chance of gaining significant capital appreciation over time. This bolsters both the property’s value and the investor’s equity.

Potential Tax Benefits and Depreciation

This will be subject to states and territories, but there are several tax benefits that come with investing in property. This includes the depreciation of the property and capital allowances on eligible assets within the property, which reduces your overall taxable income.

Tenant Responsibility for Property Expenses

Many commercial leases often stipulate that tenants are responsible for property-related expenses, including maintenance costs, repairs, and certain operational costs. This relieves you of certain financial burdens associated with the investment property, keeping more money in your pocket.

Diversified Portfolio

Including a commercial property in your investment portfolio results in a more diversified portfolio and asset base. In turn, you’re able to spread risk and enhance the overall performance of your portfolio value.

What Are the Disadvantages of Investing in Commercial Property?

As with any type of investment, commercial property investment comes with certain disadvantages, too. These include:

Higher Initial Capital

Compared to other investment opportunities, acquiring commercial property requires significant upfront costs and capital. This could be a barrier for many investors, and, similarly, it may increase risk exposure to a single property or sector by limiting diversification should you need to liquidise assets to get that high initial capital.

Vacancy Risk and Income Stability

While the rental property market is usually quite competitive, there are no guarantees that your investment property is going to be filled quickly, and an extended period of vacancy (whether initial or between leases) can result in a loss of income stability.

Regulatory and Legal Complexities

There are often additional costs associated with adhering to various regulatory standards, zoning laws, and building codes. Likewise, dealing with disputes, tenant laws, and contractual agreements can result in legal complexities, which, in turn, incur potential expenses.

Pros & Cons of Investing in Shares

As you can see, investing in property has multiple benefits. But is it better than investing in shares? Let’s take a closer look at the benefits.

What Are the Benefits of Investing in Shares?

Dividend Income

The biggest potential benefit to investing in shares is that many companies distribute dividends to shareholders on a regular basis, providing a regular incoming in the process. Dividend income also doesn’t have to be used as additional income and, instead, can be used to reinvest, potentially resulting in even higher income moving forward.

Liquidity and Accessibility

Shares are highly liquid assets, allowing investors to buy and sell easily on the stock market, providing flexibility and quick access to funds, which is something investing in property isn’t able to offer. Likewise, this accessibility to the stock market through online platforms and brokerage accounts makes it much easier for investors to manage their portfolios.

Long Term Investment Potential

Historically, shares have shown the potential to outperform other investment classes over the long term, which contributes to wealth creation.

Affordability

While an investment property requires high initial capital, shares offer a much more affordable investment strategy and suit investors with different budget levels. This also makes them a good choice if you’re planning to start your investment portfolio with a smaller amount of money.

What Are the Disadvantages of Investing in Shares?

Market Volatility

As share prices can fluctuate quite dramatically based on various factors, including economic conditions, market sentiment, and geopolitical events, investing in shares versus property is often more volatile. Market sentiment, in particular, can significantly impact stock prices and lead to rapid, unpredictable changes in value.

Lack of Control

As a shareholder, you have very little control over the decisions made by the company you’ve invested in. Even if you hold voting rights, individual investors may not be able to exert significant influence on the company’s direction, and if poor management decisions are made, stock prices can be adversely affected.

Company Performance

There are also company-specific factors, such as changes in leadership, product failures, or legal issues, that can lead to a decline in share value. This can also lead to dividend variability, meaning that companies may reduce or omit your dividend payments according to company performance, which affects income.

Whether you feel shares or property is the right choice for your investment journey, we’re here to help. Contact us today to book a no-obligation 15-minute call, and we’ll answer any questions you have, talk you through your options, and look at which is best to help you grow your wealth portfolio.

Is it Better to Invest in Commercial Property or Shares?

Deciding between investing in commercial property vs shares is really about aligning your personal investment strategy with your individual circumstances, financial goals, risk tolerance, and prevailing market conditions.

Investing in commercial property is a more tangible asset that shares and provides better stability and potential for steady rental income. However, it demands substantial upfront capital, involves more responsibility, and carries risk tied to property-specific factors.

Shares, on the other hand, present opportunities for growth, dividends, and liquidity while allowing you to build a diversified portfolio with smaller events. The stock market’s volatility, however, along with the challenges of timing the market, make shares more of an uncertain investment avenue.

Ultimately, your investment journey will be based on your personal circumstances, and in many cases, a mix of both asset classes is best to diversify risk.

Need Help With Your Commercial Property? Book a Free Call with an Experienced Commercial Buyer Agent

Take all of the stress out of commercial property investment by contacting Revolve Commercial today. Contact us now to speak with an experienced member of our team, and we’ll walk you through everything you need to know and do all of the hard work for you.