Like many on this forum I am also new to this. At 42 I feel like I am starting late (compared to a few of the 23 year olds who are starting out-good luck to them).
My question relates to anyone who has had experience with Commercial property as an IP. Most of the discussions on this forum are about residential and I have the possibility of buying a commercial property at a reasonable price. My business is one tenant but would need a couple more to make it +ve. It is in a high population growth area but there are a few vacant offices around.
I am really interested to know of any success stories for +ve cashflow on the commercial side.
But don’t hesitate to give me any bad news either!
Thanks in anticipation
m
Hi markk,
I’m one of the 23 year olds just starting out. Sorry I can’t help with advice on Commercial property, but I can tell you one thing: it’s never to too late (or early) to start out. As they say… better late than never
Good luck!
Ozi
I had a commercial property in a country town – about 3000 people. Had two tenants in it for about 3 years. One tenant with gov’t funding lost its contract. Six months later the second lost a major contract. The returns were good. I spent the next year doing some renovations and was able to sell the property with a tenant about to move in and occupy the whole property to another investor. I also had an inquiry from someone else at the same time to rent part in a few months when they would have to move out from other premises
The property had pros & cons :
pros – plenty of offstreet parking
cons – not on main streetLook at what standard properties need to be eg if potential market government, ngos might need diabled access & toilets, air conditioning, some security. Or if you can provide these things and the other landlords don’t you’ve got a USP (unique selling position) to potential tenants.
Commercial’s higher risk because of risk of vacancies. How long’s the lease your existing tenant is on? How likely are they to move? Are there other businesses that you could attract eg lawyers often like to be close to courthouse.
Also a potential tenant might be tied in to an existing lease.
The scope’s there with commercial to add value by solving the problem of vacancies, particularly if you can buy at a good price that reflects current income rather than potential income
My brother has a mix of commercial and residential IP’s. His commercial stuff gives him great yield but at the cost of capital appreciation. Over the last few years his residential properties have almost doubled but his commercial properties have lagged way behind.
He has also suffered the classic nightmare scenario with his commercial stuff too. A 6-month vacancy where the new tenants would only take a lease if he fitted out the floor for them (A $42k outlay that they are supposed to pay for themselves!). He spent many a sleepless night with this vacancy on his mind and if you have a low SANF think twice about commercial IP’s.
He told me if he had his time again he would stick to residential IP’s.
being an ex-shopping centre and commercial property property like an investment there are ups and downs. More ups I hope.
The most important thing the remember with renegoitating leases get more rent as in commercial your sale price is geared to your return. Utilise rent-free periods and fitout incentives but dont drop the rent.
Depending of what sort of tenant you have blue chip ones are fantastic. If you dont have a tenant the repayments are huge. Unfortunately i dont know much the depreciation is on this type of property.
Remember a bank will only lend you 70% on commercial and the ineterst is about 2% higher than residential so draw out as much equity as possible to use as a deposit that way the money is lent on a residential interest rate.
Be careful about oversupply
Thanks for the input everyone. At least i have some direction before I make any decisions.
qwerty, (or anyone else) what is SANF? apparently I need a high one!
good hunting
m
Hi Mark,
SANF = Sleep at night factorRegards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Hi Mark,
It’s never too late to start investing or anything new to that matter. Ray Kroc basically set up McDonalds in his sixties.Regarding commercial property, each investment will have its own pros and cons. I take it you are looking at offices so you need to research the rent rates for offices in the area to determine what the property is worth. Speak to some agents and get an idea of the type of office space there is a demand for. These days businesses have different requirements such as data cabling which can effect the demand for a given property.
Another thing to look at is alternative uses. Some office blocks are great for converting to apartments or backpackers for example. Often alternative uses are where the money is made.
I swear by commercial. Residential to me is only a stepping stone to the big stuff.
Cheers
JeffThanks Jeff
It’s always nice to hear some positive results and get some beneficial input
markk
Happy Hunting
http://www.kentscollections.comHi
Don’t forget industrial properties. I am receiving great yields and capital growth. The tenants pay all outgoings and because they run their business from the property it is in their own interest to look after the premises.
Regards
Hi Pickworth
I was interested to hear your comments about capital growth. I understood that because of the nature of industrial land, the property values never did much but were rather based on rental returns.Over what period and what rate is your capital growth (and where just a matter of interets)
Anyone else’s reply is also welcome
markk
Happy Hunting
http://www.kentscollections.comHi Markk
I have some industrial properties in the south eastern suburbs of Melbourne. The most recent valuation revealed capital growth of 25% over 3 years. I am investing for passive income so that is a great little bonus – better than bank interest !!
Just for your interest I have recently sold a commercial property in a shopping strip for a tidy sum. The secret was to have your business pay off the property loan and then know when to take a profit and sell up.
As the saying goes you will never go broke taking a profit.
All the best.
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