Capital Gain - resi vs. comm

[Land]

So, the wife and I were originally going to go for a pure LOE strategy, but we've decided that we will start out doing this and then after sufficient capital growth has been achieved, will sell off half the portfolio to own the other half outright and live off the rents.

Then we realised that if we're going to live off rent, it's better to have a high yielding portfolio i.e. commercial! So the plan is to LOE for a while (3-5 years), then sell all and buy commercial with the proceeds and live off a lovely, healthy yeild.

I have read that industrial generally returns a yeild of about 8-10%, and capital growth of 3%, whereas I know resi returns a yield of 4-5% and a capital growth of approx 8%.

My concern/question is about the capital gain and protection of our capital.

If the 3% capital gain is true for industrial, whilst we will enjoy lovely income/cashflow, in 10 years time, if we put $3M into resi or comm it would be worth the following amounts:

resi $6.47M
industrial $4.03M

At the 20 year mark, it looks like this:

resi $13.98M
industrial $5.4M

That's a huge difference!! I would really like to know everyone's opionion on this scenario and whether or not it actually plays out like this. If this actually occurs, does industrial property just get cheaper and cheaper to own relative to residential?

Does it actually play out like this over the years? I love the yeild, but very concerned about the disparity in capital growth.

 

[landlubber]

I don't think the "difference" is that "black & white". You're talking more "different cycles" and "different ways of valuing".

If you want to educate yourself on comm. google on Chris Lang.

LL

 

[Land]

I know about Chris Lang - I'm reading his book - that's where these general growth figures come from that have me pondering....

 

[Ausprop]

3% is a load of rubbish. we bought a vacant block 8 months ago (for building an office) that has grown 100% in that time. even in the height of the Perth boom I wasn't getting these sorts of growth rates on resi.

IMO, resi is low yield, low cap growth, high risk

 

[Land]

Ausprop,

Thanks for that feedback. Dazzling has also been talking about the incredible gains been made in the commercial sector in Perth.

I've noticed a couple of sales for off-the-plan for factory units in Perth, due for completion in 12 months time. Do you think it may be a good idea to pick one of these up?

In terms of the 3% though, whilst I understand Perth is doing quite well (off the back of the mining boom), I wonder what general commercial growth has occurred in Sydney and Melbourne over the last 20 years? Does anyone have any experince?

Cheers