Commercial property
- Thread starter Sutts
- Start date
Dear Sutts,
I have heard that commercial property gets better rental yields than residential but it is riskier. I have always assumed that you need much larger amounts of money to put into it to make it worthwhile but I would be interested to know too, if there is anyone out there who has invested in commercial property and what their experience was.
What do you mean by syndicate?
Robyne
I have heard that commercial property gets better rental yields than residential but it is riskier. I have always assumed that you need much larger amounts of money to put into it to make it worthwhile but I would be interested to know too, if there is anyone out there who has invested in commercial property and what their experience was.
What do you mean by syndicate?
Robyne
Sutts,
As a commercial property lender, I know a lot about commercial property investment, and it is somewhat different to Residential investment.
Commercial property gains rely heavily on the tenants, i.e. rent, strength of tenant, term of lease, lease covenants etc.
I could write a hundred pages on this form of investment, so if you want to ask specific questions, I am happy to reply.
In regards to risk..well the risk is manageable, but generally, is considered more risky, hence the higher yields. However, if you had an A tenant on a ten year lease, then the risk is less than resi. Its hard to compare apples with oranges though, so you need to judge on case-by-case basis.
Regards
Amedeo
As a commercial property lender, I know a lot about commercial property investment, and it is somewhat different to Residential investment.
Commercial property gains rely heavily on the tenants, i.e. rent, strength of tenant, term of lease, lease covenants etc.
I could write a hundred pages on this form of investment, so if you want to ask specific questions, I am happy to reply.
In regards to risk..well the risk is manageable, but generally, is considered more risky, hence the higher yields. However, if you had an A tenant on a ten year lease, then the risk is less than resi. Its hard to compare apples with oranges though, so you need to judge on case-by-case basis.
Regards
Amedeo
Hi Amedeo,
I was reading a book on property investing, and was more interested in commercial property syndicates, ie where you go in with other like minded people to buy a commercial property (for Robyne) (although this has its own inherent problems as I believe you can’t draw down any equity increases).
The returns seem higher and we have hit the servicability wall with our residential investment properties.
I was reading a book on property investing, and was more interested in commercial property syndicates, ie where you go in with other like minded people to buy a commercial property (for Robyne) (although this has its own inherent problems as I believe you can’t draw down any equity increases).
The returns seem higher and we have hit the servicability wall with our residential investment properties.
Hey Sutts,
Syndicates are very interesting! They can be very risky too! Here are some questions to ask the syndicate director:
1) Who's in charge? i.e director, board, etc. What decision making role do you have.
2) Exit strategy. How and when do you liquify your profits. Are regular dividends paid? etc
3) Borrowing intention. What is the expected gearing? Is it non-recourse (critical for your protection!)?
4) Past experience in commercial properties and syndicates?
5) Structure?
6) Number of shareholders?
My first thoughts are that a small group setting up a syndicate are facing potential problems if not managed properly. Syndicates do offer advantages though, as the pooling of funds allow you to go after bigger trophies, combine skills, etc.
Have you thought about Listed Property Trusts? These are more liquid, although the lower risk profile means lower potential returns, but in theory, is a safe way to invest in property without affecting your serviceability.
Thanks
Amedeo
Syndicates are very interesting! They can be very risky too! Here are some questions to ask the syndicate director:
1) Who's in charge? i.e director, board, etc. What decision making role do you have.
2) Exit strategy. How and when do you liquify your profits. Are regular dividends paid? etc
3) Borrowing intention. What is the expected gearing? Is it non-recourse (critical for your protection!)?
4) Past experience in commercial properties and syndicates?
5) Structure?
6) Number of shareholders?
My first thoughts are that a small group setting up a syndicate are facing potential problems if not managed properly. Syndicates do offer advantages though, as the pooling of funds allow you to go after bigger trophies, combine skills, etc.
Have you thought about Listed Property Trusts? These are more liquid, although the lower risk profile means lower potential returns, but in theory, is a safe way to invest in property without affecting your serviceability.
Thanks
Amedeo
Hi
Over the years I have had unlisted property trusts, managed funds and now direct investment.
Managers tend to come out the best in most managed investments with investors getting whats left. Unless there is need to save/park a deposit for a future investment I would stick to direct investment because of the control you have.
In Commercial property cash flow is king! Depreciation is higher as is the risk of vacancy.
bundy
Over the years I have had unlisted property trusts, managed funds and now direct investment.
Managers tend to come out the best in most managed investments with investors getting whats left. Unless there is need to save/park a deposit for a future investment I would stick to direct investment because of the control you have.
In Commercial property cash flow is king! Depreciation is higher as is the risk of vacancy.
bundy
Hi Dave
Comercial tends to +ive cash flow from day one if you have bought well. Generaly the rent per SQ M is higher than residential and your depreciation is at 4% and the tenant pays the outgoings for you.
CG can still fund deposits and it is posiable to do a full loan and have pre-depreciation $'s in your pocket every month which with depreciation turns into a paper loss.
High yeild = fewer propeties to reach your magic number for passive? retirement income.
On the downside you have difficulty getting more than 80% lends at a reasonable inerest rate. Most banks like a 60% LVR for a cheaper loan rate when you have enough CG to refinance. Vacancy rates can kill you and that is where location and picking a good leasing agent comes in.
bundy
Hi Sutts
I like main road office/shop space in Adelaide. I go for less than 150sq m as there seems to be greater demand for rentals and vacancies don't hurt as much. I also only look within 10km of the CBD without crossing into it.......yet! Further out can have better yeilds but the risk is greater.
bundy
Thanks for the info Bundy.
How did you get involved in Commercial Property?
It seems like a totally different proposition to residential.
Most people have experience in the residential market through their PPOR(s) and therefore moving to investments is somewhat comfortable.
There are also lots or research tools available.
Commercial Property seems a total mystery
How did you get involved in Commercial Property?
It seems like a totally different proposition to residential.
Most people have experience in the residential market through their PPOR(s) and therefore moving to investments is somewhat comfortable.
There are also lots or research tools available.
Commercial Property seems a total mystery
Hi Sutts
My original start was with property trusts. Then I had to choose what to do with final payday and after researching shares, residential and commercial I went down the commercial path for the cashflow posiable.
There is higher risk and if I was still working full time I may of gone down the residential path neutraly geard as much as posiable.
bundy
