Most investors start with residential property. It makes sense: easier finance, lower deposits, more liquid, and everyone understands houses. But at some point, the game changes. You can be sitting on millions in resi equity and still only clearing a modest income each year. That’s when the commercial conversation begins.
Here’s how residential and commercial fit into the four stages of a property portfolio.
Stage 1: Acquisition
This is where nearly everyone starts. You’re buying foundation assets and getting runs on the board. Residential shines here because:
Banks love it. Higher LVRs, longer loan terms, lower rates.
Entry costs are lower. You can get started with a smaller deposit.
It’s more liquid. If you need to sell, there are more buyers.
Commercial at this stage? Rare. The only exception is if you’re a business owner buying your own premises. Otherwise, it’s usually premature — the barriers to entry and risks are higher.
Stage 2: Growth
This is the fun part. Leverage, compounding, manufactured equity — resi is the workhorse here. Buy well, hold long enough, maybe do a reno or subdivision, and watch your wealth snowball.
But commercial can play a role here too, if you know what you’re doing.
Buy an under-rented building, re-lease it at market rates.
Refurbish or refit and lift the rent profile.
Subdivide or strata-title to create multiple income streams.
Ride a yield compression cycle where cap rates tighten and values jump.
These are more advanced plays, but they can turbocharge growth. For most investors, though, resi dominates this stage.
Stage 3: Consolidation
This is the clean-up phase. You’ve had a good run, now it’s time to reduce risk and strengthen the portfolio.
Sell off underperforming resi.
Pay down debt.
Improve net yields.
It’s also when some investors dip a toe into commercial. Think small medical suites, a tenanted office, or a little industrial shed. The focus is on stabilising rather than swinging for the fences.
Key tip: always stress-test commercial for vacancies. A resi vacancy might sting for a few weeks. A commercial vacancy can last six to twelve months.
Stage 4: Harvest
This is where commercial really comes into its own. By now, resi has done its job: it’s built the equity base. But resi doesn’t usually deliver the income you need to fund your lifestyle.
Commercial does.
Net yields of 5–7% (vs 2–4% in resi).
Leases three, five, ten years long.
Tenants who often pay the outgoings.
This is when investors sell or refinance resi and roll into commercial. The growth engine hands over to the income engine.
Case Study: Sam’s Pivot
At 38, Sam buys his first resi assets.
In his 40s, he builds the portfolio and even does a reno project.
By 50, he’s sitting on solid equity. He consolidates, sells one dud property, and starts looking at commercial.
At 55, Sam sells down and pivots fully into commercial. He places $5m into assets yielding 6%. That’s $300k net income per year. Far more than his lifestyle costs.
Resi built the nest egg. Commercial turned it into freedom.
Checklist: Are You Ready to Pivot?
You’ve got strong resi equity ($3m+).
Your net cashflow is low compared to the equity base.
You value stability more than chasing another boom.
You can handle lower LVRs and bigger deposits.
You’ve got bigger buffers in place.
You’re working with a broker and advisers who know commercial.
Reflection
The mistake I see too often is investors clinging to resi forever. They end up asset rich, income poor. At some point, the portfolio has to switch from building wealth to paying you back. That’s the pivot.
Disclaimer
This article is for educational purposes only. It does not constitute financial, tax, or legal advice. Everyone’s circumstances are different. Please seek professional advice before acting on any of the strategies outlined above.
