Reply: 1
From: Kristine .
Hello Nigel
Non-residential investing can take many forms, and it's good to have oranges as well as apples in the fruit bowl. However, commercial is not for the faint hearted, and caution is advised primarily because of potential for long vacancies between tenants. The more specific the improvements on the property (eg a bowling alley, or an airfield) the longer the facility may remain empty.
In my observations, the best commercial investments are where the owner/operator of the business buys and develops their own freehold. MacDonalds, I have heard, only appear to be in the business of hamburgers, and have used the business operations to become the single largest owner of real estate world wide.
Commercial cycles are long and slow, with much less fluctuation than residential and certainly less than the share market. However, it would be hard to consider commercial property to be trading stock.
Strata titled car parks, storage lockers, cyrogenic capsules etc are novelty investments and make great 21st birthday presents for the children. Although they are most likely to be an all cash purchase, it certainly wouldn't hurt to have a couple in the portfolio, but to be really effective perhaps it would be best to buy them in parcels.
Regarding due diligence, the prime factor is location. If that is right, the tenant will come, stay and prosper. However, determing where that location is and why it is important is critical to the success of the investment.
For example, the local hospital, in an effort to relieve parking congestion in surrounding streets, has built a small double level carpark within the hospital grounds and within sight of the main entrance. However, it is $2 (rent)in the slot to enter, and because it is multi level the lower floor is under cover but gloomy, and the upper deck visible but without shelter. And visitors think 'Oh, I'll just pop in to visit good 'ol Joe, I won't be long, I'll just park here, across the ambulance depot doors, I'll be back in a tick'. So if you owned this underutilised car park, would you be a happy investor?
But what about the multilevel car park in the CBD which sells for $45,000 a bay on a 25 year lease at 6% indexed, and is close to major department stores, theatres and restaurants which are open till midnight, the park is staffed 24 hours per day, with $4.50 per half hour signs out the front?
Both situations are carparks, but are both investments providing security, negotiability, yield and the potential for capital gain?
Nigel, the commercial / residential question is somewhat akin to the question regarding string and the lengths thereof. However, I must admit to keeping elastic bands and paper clips, reusing old envelopes as notepaper, and to collecting bits of string of any length 'cos you never know what might come in handy one day.
Now, where did I put that cyrogenic capsule?
Cheers
Kristine
PS
At one time I was involved with the Fire Prevention Committee for Region 13. The local Fire Captain was bemoaning that when parents collected their children from the kindergarten next to the fire station, they often blocked access to the station. My suggestion was that a large sign be posted at the front of the station, written in large letters "Please don't park across our doors, the house on fire could be yours!"
and no, that really doesn't have anything to do with anything else, it just happened to come to mind so I thought I'd share it with you!