When I started investing in residential property there were heaps of good books to read and lots of investors offering advice. I'm interested in knowing a bit more about commercial property. Can anyone point me in the right direction for books, internet sites etc. Anyone have any good pro's/con's? Dazzling, any thoughts/help you can provide?
Commercial property
- Thread starter goddessk
- Start date
Hiya Goddessk,
On an educational level, I'm not much chop to you really.
1. Have never purchased a real commercial property, so have no clue on that score.
2. Have never read a book with anything about commercial property.
3. Wouldn't have a clue how to attach those link thingies into posts.
I must admit, when I started investing in non-residential stuff, I too was desparately looking for anything I could get my hands on, and came up pretty much empty handed. I get the feeling there is a very large groundswell in Australia to learn more about the non-ressy stuff, but the market doesn't seem to have catered for that demand.....don't know why....maybe a market opportunity there somewhere ??
We've been doing this non-ressy stuff exclusively now for the past 2 years and had an OK run, although there are many many older folk and institutions doing similar to us but on a far larger scale. Prying decent, usable info off those guys is worse than pulling teeth.
What exactly were you after, other than "any property that grows it's socks off and yields like a rip-snorter...."
On an educational level, I'm not much chop to you really.
1. Have never purchased a real commercial property, so have no clue on that score.
2. Have never read a book with anything about commercial property.
3. Wouldn't have a clue how to attach those link thingies into posts.
I must admit, when I started investing in non-residential stuff, I too was desparately looking for anything I could get my hands on, and came up pretty much empty handed. I get the feeling there is a very large groundswell in Australia to learn more about the non-ressy stuff, but the market doesn't seem to have catered for that demand.....don't know why....maybe a market opportunity there somewhere ??
We've been doing this non-ressy stuff exclusively now for the past 2 years and had an OK run, although there are many many older folk and institutions doing similar to us but on a far larger scale. Prying decent, usable info off those guys is worse than pulling teeth.
What exactly were you after, other than "any property that grows it's socks off and yields like a rip-snorter...."
Dazzling said:
Hahaha, yes that's about what I want!
Seriously...based on limited knowledge I felt that commercial has good returns and lower outgoings generally with longer rents so was just interested to investigate and had no idea where to start. I like to diversify so was just interested to see what commercial was all about.
When you say you have "never purchased a real commercial property", what does that mean. I thought you were the expert in commercial property.
its more risk basically. the yields are better, but CG might not be as great. you're basically tied to the financial success of your tenant, cause if they go broke and stop paying rent you get put in a tricky situation.
they are usually valued using Discounted Cash Flow (DCF), theres plenty of books on DCF about.
theres some information about syndicates and so on here http://www.gal.com.au/
and this book thats been mentioned on the forum here http://www.moneybags.com.au/default.asp?d=0&t=1&id=4731&c=0
www.finsia.edu.au has a unit on commercial property investing in its postgrad course. you can buy just the notes for a unit, but they are a few hundred dollars, from memory.
a while back i was looking at buying a building that consisted of a restaurant and 2 residential apartments. due dilligence revealed it was operating at about 3 x the capacity it was approved for, as it had been approved as a cafe and subsequent owners made it into a full restaurant. it needed a reasonable amount of work done (new roof, needed rewiring) and i didnt feel comfortable with it as i felt like i would be getting in over my head.
the lease was a 5 year lease with an option to renew for another 5 years, which had been taken. one of the apartments was rented out to the resturants owner and chef, the other to some guys who hadn't had a rent increase in about 7 years it seemed (hmm, not bad if you can get it). it passed in at auction and im not sure who bought it. i had to go away for work for a few months, but my mother (who likes her food) kept an eye for any news on it.
turns out the chef had a good head for business and made his money establishing resturants and selling them as turnkey businesses. he sold the resturant to a couple, presumably after the sale of the building had gone through, and the 5 year option on the lease taken. however, in a genuine tradgedy, the new resturant owners were killed in a car crash only a few days before they were to have their opening night. wow
the guy who established it was going to stay on for a while to train them in running it, and i really have no idea who now owns the resturant and who runs it etc. it is very sad what happened to the people who bought it, but i guess you have to realise things are more risky with commercial, and you're closely tied to your tenant. if you can handle that risk, more power to you, but i think ill stick to listed property trusts and residential till i have deeper pockets.
i guess if you do have deep pockets/appitite for risk, the returns are better. a commercial lend will usually be on an LVR from 50% - 75%. with residential it seems you make your money when you buy, but with commercial it seems to be when you sign the lease. the terms of the lease are very important, and form the basis of the DCF valuation (rents + forecast increases, less expenses basically). also, lawyers and agents fees generally seem to be higher, as its more complex overall.
they are usually valued using Discounted Cash Flow (DCF), theres plenty of books on DCF about.
theres some information about syndicates and so on here http://www.gal.com.au/
and this book thats been mentioned on the forum here http://www.moneybags.com.au/default.asp?d=0&t=1&id=4731&c=0
www.finsia.edu.au has a unit on commercial property investing in its postgrad course. you can buy just the notes for a unit, but they are a few hundred dollars, from memory.
a while back i was looking at buying a building that consisted of a restaurant and 2 residential apartments. due dilligence revealed it was operating at about 3 x the capacity it was approved for, as it had been approved as a cafe and subsequent owners made it into a full restaurant. it needed a reasonable amount of work done (new roof, needed rewiring) and i didnt feel comfortable with it as i felt like i would be getting in over my head.
the lease was a 5 year lease with an option to renew for another 5 years, which had been taken. one of the apartments was rented out to the resturants owner and chef, the other to some guys who hadn't had a rent increase in about 7 years it seemed (hmm, not bad if you can get it). it passed in at auction and im not sure who bought it. i had to go away for work for a few months, but my mother (who likes her food) kept an eye for any news on it.
turns out the chef had a good head for business and made his money establishing resturants and selling them as turnkey businesses. he sold the resturant to a couple, presumably after the sale of the building had gone through, and the 5 year option on the lease taken. however, in a genuine tradgedy, the new resturant owners were killed in a car crash only a few days before they were to have their opening night. wow
the guy who established it was going to stay on for a while to train them in running it, and i really have no idea who now owns the resturant and who runs it etc. it is very sad what happened to the people who bought it, but i guess you have to realise things are more risky with commercial, and you're closely tied to your tenant. if you can handle that risk, more power to you, but i think ill stick to listed property trusts and residential till i have deeper pockets.
i guess if you do have deep pockets/appitite for risk, the returns are better. a commercial lend will usually be on an LVR from 50% - 75%. with residential it seems you make your money when you buy, but with commercial it seems to be when you sign the lease. the terms of the lease are very important, and form the basis of the DCF valuation (rents + forecast increases, less expenses basically). also, lawyers and agents fees generally seem to be higher, as its more complex overall.
goddessk said:
Ummm, definitely not an expert in any property field, let alone CIP's. Have been doing this carry on, on a relatively small scale for 2 years. You need to speak to some of these folks, like my Mentor, who have been doing this lark for the past 45 years....on a fairly decent scale.
We've never bought a commercial place, never bought anything retail, never done any developing and had absolutely nothing to do with any office complexes....yet. Pretty impressive hey !!!
We do own a modest amount of industrial stuff, but that behaves a tad differently to the above four, and the characters you have to deal with are more up my alley....if you haven't gathered, I'm not a 3 piece suit type of chap. Fluffy, nancy cafes and shopping malls aren't really my cup of tea.
We've just finished an interview on our "dirty" activities and you should be able to read more about the nitty gritty....pretty soon.
Daz
I look forward to reading about it.
Goddessk
I don't have residential IP's as such, but i dabble in retail shops with units above.
I have a preferance for the shopping strip, which i noticed API mag states is increasing in popularity.
I cant stress enough the importance of researching the location and future of areas which may prosper depending on development proposals and circumstances surrounding these developments.
Major Cons
Higher interest rates, higher fees
Lower release of increase in equity 60-80%
Commercial lenders not as flexable(in my case anyway)
Because i target units above commercial, i have managed to lock in residential rates on those IP's when rerfinancing(playing them off)
My last investment was back in 02, a bargain at 175k and yes back then i couldn't belive why no one had bought it and found out later that 3 prospective buyers had failed finance applications.
Yes she was a dump and only yeilding 11%
But that same dump has doubled in value as everything else did, but now as i knew back in 02 the freeway is about to take the 30 thousand trucks off the front door every day, the council has sent out tenders to reconstruct the entire area including paving, curbs, streetscape, underground power, trying to encouraging a caffe precinct.
I have a application in asking for 4 parking spots out front to be converted into a outdoor dinning area,short retaining wall.
The potential is huge but will also require me spending 250k on redeveloping the shop and units above..... if the area turns caffe the units will be turned into offices.
Godessk within the next 3 months i am about to jump into a pure residential investment in melb, and i am entering new ground as you are thinking about, it's a strange feeling when you move into new territory but then again it's just like starting over again( think outside the circle you invest in).
Goodluck
Ken
I look forward to reading about it.
Goddessk
I don't have residential IP's as such, but i dabble in retail shops with units above.
I have a preferance for the shopping strip, which i noticed API mag states is increasing in popularity.
I cant stress enough the importance of researching the location and future of areas which may prosper depending on development proposals and circumstances surrounding these developments.
Major Cons
Higher interest rates, higher fees
Lower release of increase in equity 60-80%
Commercial lenders not as flexable(in my case anyway)
Because i target units above commercial, i have managed to lock in residential rates on those IP's when rerfinancing(playing them off)
My last investment was back in 02, a bargain at 175k and yes back then i couldn't belive why no one had bought it and found out later that 3 prospective buyers had failed finance applications.
Yes she was a dump and only yeilding 11%
But that same dump has doubled in value as everything else did, but now as i knew back in 02 the freeway is about to take the 30 thousand trucks off the front door every day, the council has sent out tenders to reconstruct the entire area including paving, curbs, streetscape, underground power, trying to encouraging a caffe precinct.
I have a application in asking for 4 parking spots out front to be converted into a outdoor dinning area,short retaining wall.
The potential is huge but will also require me spending 250k on redeveloping the shop and units above..... if the area turns caffe the units will be turned into offices.
Godessk within the next 3 months i am about to jump into a pure residential investment in melb, and i am entering new ground as you are thinking about, it's a strange feeling when you move into new territory but then again it's just like starting over again( think outside the circle you invest in).
Goodluck
Ken
