I can appreciate having to consider options like these. In fact I came to exactly this fork in the road some tine back.
In my case it was really a question of do I stay with residential or do I branch out into industrial commercial.
A number of issues that were confronting me :-
Land tax - with a bill of about $6k in 1997 (5 houses and 1 strata factory in portfolio)
Maintenance on existing properties
Fairly busy with my business so little extra time but could see that we will need to invest as c/f was considerable.
Flat real estate market at that time but could see that residential was going to move.
Long term business prospects were shaky (managed to hang on until 2005
)
Lift myself above the average investor and PPOR buyers who I felt were bringing down the % returns for residential.
The focus of my investing has always been c/f rather than my aim was to replace the income generated by the business cg so this pretty well eliminated the higher end residential market.
I spent some time considering industrial/ commercial with my concerns here being the long vacancies between tenancies that I observed every time there were vacancies (remember this was in the mid 90's). At that time it wasn't unusual to find ind/com at 12% returns and standard residential 5-7%.
We were looking for some suitable properties when I came across blocks of units in the advertisements basically at land value so thought I would go along and have a look. These blocks were at 10-12% gross return.
Initially looked in liverpool but the tenants were a mixed lot having a poverty mentality. Ended up looking in Cabramatta where the mind set of the tenants was completely different which actually gave the blocks little community feel.
Result ind/com at 12% but long periods with vacancies or blocks of units same returns (but gross) with only standard vacancies. So ended up buying all the blocks I could, at land price compared to new units being developed elsewhere.
Some other advantages from buying whole blocks (either flats or strata in one line)
Able to buy many with reduced land content per income.
Able to control whole property rather than deal with stratas.
Able to carry out reno's to your hearts content.
Able to absolutely control the RE managing agent as virtually employing him
Full brick construction more resilient than standard brick veneer houses
One down side of owning residential blocks with more than 4 units is that banks regard this as commercial. Even owning more than 4 units in the same strata block has the same affect.
Another down side is that expenses are larger but that simply is part of the territory. For instance replacing the guttering $5k+, having to upgrade fire rating $1k+ per unit so block of 9 recently cost $20k block of 7 cost $7k.
It worked for me with all these properties being c/f+ from day one and still getting the capital gain over time.
Cheers
