When people think of property investors, they often picture individuals or “mom and pop” investors focusing on residential properties. However, many are now discovering the significant benefits of investing in commercial properties. Here are five compelling reasons why you should consider commercial property investment:

1. Depreciation Benefits

Commercial properties allow investors to claim depreciation on the asset. Although commercial property was removed from the list of depreciable assets in 2010, recent law changes during the pandemic have reinstated this benefit. The IRD’s document, “Depreciation – a guide for businesses,” provides more details on this. Additionally, the list of depreciable assets for chattels and building fit-outs is more extensive for commercial properties than residential ones.

2. Tenant-Paid Outgoings

With a tenanted commercial property, the tenant typically covers many of the property’s outgoings, such as rates, water, power, and other service charges. Ensuring your tenancy is correctly documented using the latest lease is crucial, as it includes a comprehensive list of tenant-payable outgoings.

3. Formal Procedures for Tenant Defaults

The Property Law Act 2007 outlines specific procedures to address tenant payment defaults. This can involve serving a notice indicating the intention to cancel the lease for non-payment of rent. If the terms of this notice are unmet, the landlord may have the right to cancel the lease and re-enter the premises.

4. Offset Tax Losses

Unlike residential property, tax losses on commercial property are not ring-fenced. This allows you to offset any tax losses against other income. If you are in a higher tax bracket, consult your accountant to understand how this offsetting can benefit you most effectively.

5. No Bright-Line Test

The bright-line tax rule, which applies to residential properties sold within 10 years of purchase, does not apply to commercial properties. This rule requires paying income tax on any gain from the sale, with specific exclusions and rollover reliefs. Thankfully, commercial property investors are exempt from this rule, simplifying the tax implications of their investments.

Get Expert Advice

Before making any property purchase, it’s essential to understand all aspects of the deal. The Corelegal property law team offers reliable and expert advice for both commercial and residential investments. To speak with one of our property law specialists, contact us today.