For many Australians, the first big investment outside of their home is a residential investment property. It feels familiar — everyone understands houses and apartments, tenants pay weekly rent, and over time property values tend to rise. It’s no wonder so many “mum and dad” investors head straight into residential property.
But residential property isn’t the only option, and it comes with its own limitations. An increasingly popular alternative is investing in unlisted property funds, which often focus on commercial property — think office buildings, shopping centres, industrial warehouses, or healthcare facilities. Let’s unpack the key differences and why investors might consider making the switch or at least diversifying.
1. Income Stability
Residential property typically delivers yields of around 1–3% after costs, with rental agreements usually running for 6–12 months. That means you’re more exposed to vacancies and renegotiations.
Commercial property, by contrast, has historically offered 6–8% p.a. yields through the cycle, with tenants often locked into 5–10 year leases that include built-in rent reviews. That can mean far more predictable and stable income streams — especially valuable in retirement when cash flow certainty matters.
2. Costs and Hassle
Residential investors know the drill: managing tenants, paying strata, covering repairs, and dealing with “midnight plumbing emergencies.” Even with an agent, it can be hands-on and costly.
Unlisted property funds pool money from many investors to buy and manage large-scale commercial properties. All the maintenance, tenant negotiations, and financing are handled professionally. You’re an investor, not a landlord — and that’s a big difference.
3. Diversification
Buying a single investment property usually means tying up a large portion of your wealth in one asset in one suburb. If the local economy slows, you wear the risk.
Unlisted property funds typically hold a portfolio of assets across sectors and locations, spreading risk. One tenant leaving an industrial warehouse in Melbourne is very different to your only tenant leaving your residential unit in Parramatta.
4. Access and Scale
Most investors could never buy a $50 million shopping centre on their own, but through an unlisted property fund, you can own a slice. This opens the door to opportunities that are normally reserved for institutional investors, while letting you commit as much or as little as suits your circumstances.
5. Liquidity Considerations
One trade-off to note: unlike selling a house, unlisted property funds may have limited liquidity — you can’t always sell out instantly. They are designed for medium-to-long-term investors. But for many, that’s not a dealbreaker given the income and diversification benefits.
Residential property has long been the go-to investment for everyday Australians, but it’s not the only game in town. Unlisted property funds give you access to commercial property markets, often with stronger income (6–8% yields), diversification, and professional management — without the headaches of being a landlord.
If your wealth is heavily tied up in a single residential property, it might be time to rethink your strategy. Reach out to us today to explore whether commercial property funds could add balance, income, and resilience to your portfolio.