- sammysmallParticipant@sammysmallJoin Date: 2015Post Count: 1
I’m looking for some advice or general thoughts on my investment strategy which I’m currently in the process of fine tuning, any comments would be greatly appreciated! I’m 25, in my last year of University and have just started a full time job. I have also just come into a considerable inheritance. My current plan is to break that money up into multiple deposits and purchase 3-4 commercial properties that produce passive income through a trust/company structure. Any passive income earned by the properties would then be used to accumulate more investments.
I am fond of commercial property due to higher yields in comparison to residential properties, but also because the tenant (depending on the lease) pays for the majority of the outgoings, which is important to me at this early stage of my career with a graduate salary. By purchasing more than one property, my hope is to decrease my risk of financial distress by diversification. My aim is, should one of my properties experience vacancy, the passive income produced for my other investments would cover the costs incurred until a new lease is signed.
Do you think I’m on the right track? Are there any tips that you wish you knew before investing in commercial property?
Samanthawilko1Participant@wilko1Join Date: 2010Post Count: 510
I suppose that depends on how much, considerable it is for you. The size of your inheritance. If it was a decent amount, your should change your focus from working to investing that money.
Firstly I would question have you bought any property at all period?
Secondly commercial lending is at a lower LVR typically then what’s available to residential 70% compared to – (80-95 with LMI)
There is also a lot more in depth legal advice you would have to do regarding your commercial leases.
Whilst outgoings might be covered. If a large Tennant was to leave your risk (whilst insurance can minimise some, if it is rent default) might be higher then with residential.
Its a lot easier to sell or rent residential homes then commercial tenancies.
What state are you investing in or seeking to invest in?
What area of commercial property are you looking to invest in.
Retail, industrial, warehouses, storage,
Personally I would go for the storage option. You purchase large amounts of land with storage facilities, houses are getting smaller, people have more junk, they will want access to their junk 24/7. You can also choose to run the business or let others lease it off you. And you retain future value should that area become ripe for development.
If you haven’t bought anything before. I would be buying residential and low value. Until you are sure you can identity value and know you are not paying too much.
Whilst in a 200k house or unit if you made a mistake you might pay 10k
If you make the same mistake with a 2 mil commercial property. 100k of lost value won’t be much fun.Corey BattParticipant@cjaysaJoin Date: 2012Post Count: 1,010
Commercial certainly does have a lot more rewards, for greater risk. Due dilligence is paramount with your purchases, as a poor purchase can result in vacancies for *years* and a declining capital value.
The size of your inheritence will play a major role in your strategy, as if it’s significant enough you can get into price ranges where the yields are strong and blue chip tenants/leases. As a rule of thumb, the low end prices generally provide you with B-D grade tenants, with lower lease terms, shaky guarantees etc.
Have a chat to a savvy investment broker who can give you a strong perspective on your potential and how to meet your goals if commercial IP’s are the investment vehicle you wish to use.DeanCollinsParticipant@deancollinsJoin Date: 2015Post Count: 376
Residential is way easier than commercial for novices. Why not buy one less property to start with and then use some of the money as cashflow for outgoings……better still why not buy one property to begin with…go through the process of purchasing and becoming a landlord then decide what to buy next….eg learn before you commit 100% of your inheritance…..Tracey BParticipant@tracey-bJoin Date: 2009Post Count: 158
If you’ve got the cash to go straight to commercial investment I say go for it. Make sure you surround yourself with the a team of people who have experience in the areas that you don’t. You don’t know what you don’t know when you’re starting out. (I joined a mentoring program just after I’d started investing and what I learnt has saved me many times the $ the program cost. If you go down this track make sure the mentoring program is independent.)
I also agree with Wilko re storage facilities as the multiple tenants mitigates the risk of 100% vacancy, although in these you’ll most likely be paying the outgoings yourself. You’ll need to educate yourself on what makes a great storage facility before you start and you’ll have a sound investment. The only downside is that most banks will only do 50% LVR due to it’s single purpose use.
Also, make sure you keep a cash reserve for when (not if) things don’t go quite to plan.
TraceyWalking to runParticipant@alisdair-horgenJoin Date: 2014Post Count: 68
Sounds like you know a fair amount. Keep talking and learning but ask people who have commercial property not just residential. Good luck.TerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
Just get some legal advice on structuring and asset protection before entering any contracts. Especially if big money is involved.king-coParticipant@king-coJoin Date: 2005Post Count: 13
If you haven’t done it already, invest some money first in education. I would recommend Steve’s property apprentice course for a good grounding in property investing. For a four thousand or so dollars it could save you tens of thousands in doing due diligence and going after right deal. The starting point of the course is working out your goals and what type of investor you are. This helps target your focus and run the filter over what you are looking at buying. You then also work out what you do and don’t have – time, capital, skills which you can leverage for the best return.
Read Anthony Robbins latest book – Money master the game. This is primarily American share market and 401K (their super type scheme) focused but has good general applicability. Basically it says to not invest in stock picking funds but in low cost market index funds.
You already have the concept of diversification for risk reduction, but this should be broadened to not just different commercial properties, but different property markets and different asset classes – shares, commodities, bonds. Another key is asset allocation between low, medium and high risk assets.
Regarding commercial property, I own a few directly in trust and super structure and many more through syndicates. To start with I would recommend investment in a syndicate where you get to leverage on an experienced team of pros who select and invest in generally large multi-tenanted properties. This decreases your risk of reduced income from vacancies, involves very little time and can produce reasonable returns of 8%+ capital growth with a medium timeframe – generally 6-8 years. You can also put smaller amounts of capital like $50-$100K, whereas direct ownership means your likely to put $100’s of thousands into a single deal, often with a single tenant so you have a higher capital risk both in the size of investment and reliance on a single tenant.
It also gives you some exposure to the whats involved with a commercial property investment. Steve McKnight is looking a re-opening the Passive income fund for further investors. Have a look at it as a property fund investment as it provides a diversified tenant base, in an alternate growing Market (the US) with an experienced team and the benefit of regular briefings and Q&A so you get to understand commercial property investment further. In 2.5 years the unit price has increased 20% and we’ve received a bit over 12% in dividends. You’re not likely to get the same growth rate in my opinion going forward but see if it meets your objectives and allocate a suitable amount of capital.
Wishing you the best…
Brendan KingPropertyGutsParticipant@propertygutsJoin Date: 2010Post Count: 57
yes, I would agree – do Steve’s Property Apprenticeship course and get his mentoring too. Then – write yourself a 10 page business plan for what you are going to do – If you have a Uni education this should make perfect sense for you. And… plenty of dud commercial property out there… take care and best wishes. GutsBrianParticipant@brian30Join Date: 2010Post Count: 8
By the look of your post you have done enough research to see the best path to take so I agree with Tracey who said GO FOR IT. You’re smart, passionate and will no doubt learn what you need to to make it work. I do recommend starting of small with something you are comfortable with and slowly increase your portfolio to larger properties as you gain more knowledge and understand the flow of the transaction and management of a property. You can purchase commercial property starting from $50,000 like a car park all the way to multi-million dollar logistical centers, the skies the limit. There’s allot of talk about starting of in residential because it’s easier than commercial where I tend to disagree. There is no point learning residential if commercial is your final goal, you might as well spend time learning what you need too and make it your strength. Commercial property isn’t riskier than residential it’s just different, however allot of the fundamentals are the same. Like any investment there are risks, you just need to know what they are and how to mitigate them. The perceived risks in commercial are sometimes strengths i.e.
– There is a lower LVR in commercial property. This is true however the Value of the property is generally based on the income it receives and not what the property next door sold for. This could work in your favor if you could find some ways to increase the rent of the property, which increases the value which in-turn you can put less money in to the deal to purchase.
– You could be left with a vacant property. This is probably the larges risk with commercial property however to offset this when you do find a tenant it’s not uncommon to sign a 5 to 15 year lease plus lease renewals where as residential is maximum around 1 year.
I hope this helps and would be interested in how you progress.
BrianChristianParticipant@christian-markgraaffgmail-comJoin Date: 2014Post Count: 3
I agree with your post, it’s all about your end goal and the strategy to get there.
P.S: Clicked on your website link and got nothing then noticed a possible spelling error. :-)BrianParticipant@brian30Join Date: 2010Post Count: 8ScusParticipant@scus101Join Date: 2015Post Count: 3
Lots of good advice, sounds like you’ve got your head in the right place Samantha good on you. Tracey & Brandon I like your comments. I’ve done a few different courses without taking in a mentoring program. I’m interested in steves & also had a look at the “we buy houses” site recommended on this forum. has anyone got advice from what they’d prefered or what they found suitable. Tracey you mentioned a private one. I did the Bob Anderson course a few years ago but haven’t contined with the mentoring program for a number of reasons. What did you or others find that gave the best back up & support. As for real estate I like good solid industrial properties. With residential ones I like to try & find underpriced ones that you can value add with either a small development eg splitter & sell off part of the block to pay for the majority of the rest (turn it to positive geared) or some reno’s. I’m probably getting a bit off track & this is probably a topic for feedback from all but without becoming a complete course junky I’m curious as to which programs have worked for others in regards to finding & structuring deals & having easy access quality after service through a mentoring programme?
But Samantha well done for getting out there & having a go, some advice I can give is sometimes the best deals are under your nose & don’t tuke out sticking local. Surround yourself with positive like minded people, do your due diligence, talk to council & don’t be afraid to get into it. Also don’t take No for an answer, I’ve just saved myself $60k on doing a splitter as the consultants I had used told me I couldn’t get out of or ease any conditions. I had a chat with council myself & explained what I was trying to do & showed them other examples in the same street & they were happy to compromise this a significant saving of both time & money.
Keen to hear people’s tho on the mentoring & course front of both steves & “we buy houses” or any others.
MarcusTracey BParticipant@tracey-bJoin Date: 2009Post Count: 158
I did the RESULTS program and am still using what I learnt regularly in our property investing activities. Check out my comments from this post in 2011 as they are still relevant https://www.propertyinvesting.com/topic/4403010-results-program-2/#comment-232241
I know someone who did the Bob Anderson course and found it good although they haven’t actually used any of their learning.
TraceyScusParticipant@scus101Join Date: 2015Post Count: 3
Thanks Tracey I’ll check it out, do you know how it compares to steves property apprenticeship one, I’d guess it’s fairly similar, I’ll check out the website wtc & go from there.
MarcusAndrew PittParticipant@andrewpittJoin Date: 2015Post Count: 21
Wow! Lots of good advice in the above posts. I would agree with all the sentiments. Only thing i would add is – write a Business Plan – in this instance a Commercial Property Business Plan – with a whole bunch of specifics. On the advice of Steve McNight – I did – and i found the process gave me tremendous focus for the journey.
Enhancing Commercial Property to Empower BusinessHoward MoralesParticipant@howardm673Join Date: 2015Post Count: 16