Did you know the average SMSF investor has around two-thirds of their capital in shares and cash?* When you are relying on the income from dividends to fund your lifestyle it can be tempting to put all your eggs in one basket, despite share market volatility being a key cause of concern for SMSF investors.
However, diversification does not need to come at the expense of attractive income. The solution may be an investment opportunity you walk past every day.
Over the last 30 years, commercial property investments like shopping malls, office towers and industrial estates have consistently delivered healthy distributions, even in a low interest rate environment. Depending on your situation, they could also help you create a more diversified and reliable income stream — especially if much of your wealth is already tied up in shares, cash and residential property.
The high-yielding property alternative
While Australian residential housing has a history of exceptional capital gains, its income potential is more limited, particularly when prices are elevated. Sydney house prices are up nearly 75% and Melbourne house prices are up nearly 50% in the last 5 years. That’s why institutional investors and wealthy individuals have historically turned to commercial property as a rewarding alternative.
Create a more diversified income stream
Commercial property also has the potential to reduce overall portfolio risk due to its traditionally low correlation to asset classes like Australian shares — meaning they’re less likely to underperform at the same time. This is because with commercial property, tenants are typically locked into leases for 3 to 10 years and are obliged to pay a steady rent even if their profitability has declined.
Three ways commercial property could help you diversify
- Stable distributions. Earn income from long-term leases with well-resourced corporate and government tenants and built-in annual rent increases.
- A hedge against inflation. Historically, commercial property values have tended to rise at rates similar to inflation, helping to preserve the real value of your capital.
- Potential gains when rates are low. Commercial property asset values generally rise when interest rates are low and investors are willing to pay more for yield, helping to offset lower returns on your cash investments.