Hi,
In the pursuit of cash flow positive I was thinking about retail and commerical property.
I have only ever purchased residential property before so I have a few questions.
There are lots of oportunites around the place to get hold of shops and offices that net between say 8-12%. That sounds good but the draw backs appear to be …
The banks want 30% deposit and charge you an extra 1% over their standard rate (I don’t know if this is universal ?).
There is usually a lease and if you lose your tentant you could be in trouble.
Also …
Lets say its a shop and the lease is five years.
You cant put the rent up for five years and then when the lease is renewed you would feel like you better not put the rent up of the business owner might leave and you could have 6 months vacancy. ?Can somebody who has experience with these types of investments fill me in on the details. ?
If its a city like Brisbane for example how long can you expect a shop of office to sit vacant if you lose you tenant.
If the tenant goes bankrupt and breaks the lease I suppose there is nothing you can do ?
In general what are the pros and cons of this type of investment compared to residential.
Thanks,
MarkLook at the lease. Don’t make assumptiosn about its contents. Most leases have rent reviews.
Your risk if the tenant renews is that if the rent has been going up by a ratchet amount, it might be above the market rate.
Commercial/ retail is only as good as your tenant ie if your tenant is running out of money you can still have an empty shop before the lease expires. To minimise vacancy risk your building should be able to be used by other businesses and be in an area in demand. One-two hundred metres away from a good area might be a poor retail site.
Obviously pros might be a better return, cons could be greater risk.
about 2 years ago in newcastle i bought 2 apartments and a ground floor commercial premises
(off the plan) were completed 2 weeks ago
fantastic results with the apartments) but my 60sm
shop front which i purchased for $90000 is empty
although am not too worried about (even if it takes six months to occupy)
but one thing i did not take into account when i settled was gst being commercial i had to pay 10%
gst ($9000) which is something i overlooked [cigar]
im just glad i didnt buy something for 300k [biggrin]k hook
Mark76g,
Well…where do I start…our philosophy for the past year and a bit has been to steer clear of RIP’s and so far it’s been marvellous. I can see many years to come of never having to buy a house again.
We sat down and did the whole pros and cons list of both and it won hands down to move towards Comm & Ind.
We don’t support all these ‘phantom’ risks that the RIP proponents continually push, especially the self styled guru’s…usually without having been substantially exposed to the market they are writing off.
In fact, being contrarian investors, we fully support the big bad risk myths about CIP and IIP being perpetuated….
Which one is riskier ?? A national or govt agency tenant on a 10 year +CF lease, with agreed rent reviews (typically CPI or ~ 4% p.a.) with all outgoings including insurances and PM charges paid for, plus 6 months of rent deposited in an account as a bank guarantee plus stated options for further extensions plus a commitment to refurbish with new paint and carpets to the Lessor’s satisfaction….or….Mr and Mrs Low income on a 6 month -CF lease and you cough for everything else with the full weight of most Residential Tenancy Laws stacked against you as Landlords. Gee, ummmm…
Below is a list of some of the small things we are currently enjoying, that were all a burden to us with RIPs;
No council rates
No water rates
No land tax
No PM fees
No renovation costs
No lawnmowing costs
No insurances to pay
No dogs
No students
No domestic disputes
Tenant has a commercial interest to keep your property in pristine conditionWith our strategic focus shift last year, our portfolio is starting to look after us, instead of us continually having to look after the portfolio.
This 70% funding myth I also believed, based on what all the experts continually kept telling me. We have just been granted 80% and I firmly believe this isn’t the lenders limit.
Stay in residential for sure, it’s far better having to wipe your tenants noses every step of the way…leaves more for us to choose from.
Cheers,
Dazzling
“Go hard or go home”
Dazzling
I’m with you – having success with both commercial and industrial. Great yields, capital growth and long leases……
Regards
Mr Pickworth
‘ You will never go broke taking a profit ‘
Hi. I have one RIP and am in the same boat, i’m starting to look at Commercial and industrial as the returns seem to be more secure and better overall. However, on approaching my current lender, they wanted 100% security on a business loan… YES you read correctly… 100%!! I explained to them that i would not be running the business just buying the building and they INSISTED it didn’t matter and i would require 100% security! So my question is, who are the lenders who are lending 80%? I will definately be going to see them soon! Thanks
Keira,
A commercial and a business loan are two different things. A business loan being higher risk without property security to back it up.
Cheers,
Simon Macks
Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Dazzling & Pickworth,
Can you point me in the right direction re obtaining finance for a CIP:
1. At 80% LVR
2. At reasonable rates?I have put in an offer for a commercial property and am looking around to get it financed. All the lenders I have spoken to will only lend to 65% or at most 70% LVR, and rates range from 7.3 – 8.0+%.
I would love to know where I can get an 80%LVR commercial loan at rates which are more similar to residential rates. Is it possible?
Any assistance would be greatly appreciated.
Thanks,
eeshole
You must be logged in to reply to this topic. If you don't have an account, you can register here.
