Ok, So this forum maybe a little biased towards commercial property…..but here we go!
I have a commercial property (motel). The business itself has been sold and the property leased for 25 years.
The property as a passive investment is worth around 1.3 million possibly even 1.4. Taking a much more conservative valuation of 1.2 million it returns 8% per annum (gross) – $100,000. 2% CPI increase each year is to be applied. i re-pay $40,000 in loan re-payments.
So question is, should I hold that property into the long term, or sell up and buy into the share market.
This is my only investment. I live in a modest 1 bedroom apartment worth 500k. My wage is 30,000 which is very low I know. I’m 40 and my wage won’t ever really grow as I’m happy in my job.
My situation is perhaps quite unusual. I’m not quite sure what would be best for me in the long term. Any comments or suggestions?Hi Dave,
If I am reading this right, aren’t you receiving $60k pa over and above costs? Or are there more costs after the mortgage? Rates? Insurance? Maintenance? Anyway, from what I think I am seeing, you have a 25 year income that exceeds your working wage. But, since you like your work, you will probably stick with it anyway.To me, this sounds like you are already where many of us are aiming to be. i.e. to exceed our present working Income with PASSIVE income. Isn’t that what you have done already?
Re investing in shares – well, I guess that is another possibility, but are you schooled in that? Is there more or less risk in that than what you have right now? And, what would YOU rather have right now? An income of over $50k (assuming there are some other expenses) that is assured for 25 years (or close to it) or an Income of “I don’t know, but could be better (or worse) than what I have now” using shares?
I think you are doing pretty damn good just as you are. I assume the Motel is situated where it will remain viable for decades to come, yeah? Other than that, what other risks are there? Do you need to maintain the Motel too? What other $$ downsides are there?
Benny
Thanks for your reply Benny,
Yes currently 60k after costs which I realise is a good position. And no I am not schooled in shares. I would have an expert help on that fo not. So you are probably thinking I’m a bit mad perhaps! I just thought shares were give me a more diversifIED portfolio. Less risk. Spread the money into different areas. The motel is putting all my eggs in one basket. If something goes wrong (unlikely but possible) that it could be a big problem to deal with.
An no I don’t have any expenses myself. The motel is maintained by the leaseholder. So yes it is a no passive income, but shares would be even more passive I feel.
There also might be a ‘retirement advantage’ in 25 years to sell the property but as it is a commercial property and laws might change in 25 years I’m not sure I can base a decision on that point of view.Hi Dave,
You have just confirmed it, so what a good place you are in. It is smart to look elsewhere too (to test the water?) but there are ways of doing that without upsetting what appears to be a very solid situation. Here are a few more thoughts, just because…. ;)Yes currently 60k after costs which I realise is a good position. And no I am not schooled in shares. I would have an expert help on that fo not. So you are probably thinking I’m a bit mad perhaps! I just thought shares were give me a more diversifIED portfolio. Less risk. Spread the money into different areas. The motel is putting all my eggs in one basket. If something goes wrong (unlikely but possible) that it could be a big problem to deal with.
Worthy of thought, for sure. Warren Buffett himself says “Put all your eggs in one basket, then watch that basket like a hawk”. And this is from one who has made most of his money in shares. He avoids “trading”, and also won’t back anything he doesn’t have much knowledge about (even if he misses out on huge booms).
I hear of many “experts” relating to shares, but really, how do you KNOW how expert they are. What might be worth considering is to invest some of your passive income into Berkeshire Hathaway by buying a few B shares. Then you will have Warren Buffett and Charlie Munger making all the decisions about your shares, and likely making the usual 20% pa return….
One other thought would be to take a defined percentage of your yearly Income and devote that to Shares. If you do well, fantastic, but if you don’t you won’t sink your own ship.
An no I don’t have any expenses myself. The motel is maintained by the leaseholder. So yes it is a no passive income, but shares would be even more passive I feel.
Awesome. And yes, the right shares could well be more passive, though your current position doesn’t sound overly “active” :p
There also might be a ‘retirement advantage’ in 25 years to sell the property but as it is a commercial property and laws might change in 25 years I’m not sure I can base a decision on that point of view.
A part of “Watching it like a hawk” methinks !!
Benny
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