Hi Forumites,
Firstly thanks for all the wise words that have been shared in this space, it's helped a lot on my investment experience so far.
I have three residential IPs and am now expanding my strategy to start looking for my first commercial IP.
I am going to document my experience of my first commercial purchase here in this thread to serve others to learn in the future, and I'd welcome input and advice along the way.
My end goal is replacing my income within 7 years (>$150K before I turn 40).
My strategy to date has been buy and hold residential investment property that are neutral/positive in larger regional centres that offer capital growth potential. My preference is never sell as rental income is what will replace my "working income" over the years ahead.
I'm now researching commercial property for a variety of reasons, however the big two that stick out are:-
1. I'll reach my goal of replacing my income a lot faster with 10% yields instead of 5% yields.
2. There seems a greater capacity to add value in commercial property, due to valuations largely being determined by rental income
I have a family trust already established between my wife and I, and right now my intention is to purchase commercial property within that trust structure for tax reasons and estate planning.
I have $100K cash. I don't think I can access equity from my resi properties to purchase the commercial property as it will be in the trust structure, so with a 70/30 LVR in commercial this does limit my budget a lot for commercial. I also have some share options to the value of $100K that accrue over this year, however ideally I'd like to not sell these until the end of next year for CGT reasons.
My goal is to purchase in around 6 months so I'll be saving hard between now and then to increase my available budget.
If a property has a lower than 8% net yield at purchase then it probably won't fit my strategy, which removes a lot of Sydney/Brisbane/Melbourne CBD commercial property.
I have a good accountant, and a reliable mortgage broker who has assisted with my residential purchases. From my readings so far, it sounds like a specialised commercial property solicitor is a mandatory due to the complexity of lease agreements so I'll definitely need to add someone to my team here.
This is the order in which I'm looking to take my next steps:-
1. Research locations:- Look at yields, vacancy rates, demand, market factors (new projects etc.),
2. Determine type of property most in demand in selected location (eg. retail, industrial, office, etc.)
3. Decide on whether to build the property, purchase a vacant property, or purchase a leased property
4. Find a great commercial property solicitor
5. Start identifying individual properties (or sites to build on), with a focus on properties that allow me to add greater rental yields
6. Lift rental yields to revalue the property and leverage into additional commercial properties
With structure and modest capital in place, my first challenge is researching locations. My experience so far is that the masses of data available to residential investors doesn't exist for commercial. This provides both challenges and opportunities.
RPData have a CityScope product which sounds okay but seems to be very CBD focused, and more geared to agents looking to approach organisations as their leases expire. Nothing else seems very comprehensive or useful, particularly if I'm going to end up buying regional again. There is some data from the big commercial property companies, but again it's all focused on CBD office space markets.
Right now I feel that my best option is look at trends/infrastructure projects that will drive particular demand, then drill down on available lease data looking at the average time to find a new tenant, the cost per sqm to buy, and average cost per sqm to rent, the market cap rate for that region, etc.
My first questions to the forum -
1. What do you think I have missed that I should give more attention too?
2. Do you think I am making some incorrect assumptions?
3. Where do you find information about the commercial property market?
4. Any other wise words?
Thanks in advance team for reading what ended up looking like an essay, hopefully we can learn and succeed together,
Sean
Firstly thanks for all the wise words that have been shared in this space, it's helped a lot on my investment experience so far.
I have three residential IPs and am now expanding my strategy to start looking for my first commercial IP.
I am going to document my experience of my first commercial purchase here in this thread to serve others to learn in the future, and I'd welcome input and advice along the way.
My end goal is replacing my income within 7 years (>$150K before I turn 40).
My strategy to date has been buy and hold residential investment property that are neutral/positive in larger regional centres that offer capital growth potential. My preference is never sell as rental income is what will replace my "working income" over the years ahead.
I'm now researching commercial property for a variety of reasons, however the big two that stick out are:-
1. I'll reach my goal of replacing my income a lot faster with 10% yields instead of 5% yields.
2. There seems a greater capacity to add value in commercial property, due to valuations largely being determined by rental income
I have a family trust already established between my wife and I, and right now my intention is to purchase commercial property within that trust structure for tax reasons and estate planning.
I have $100K cash. I don't think I can access equity from my resi properties to purchase the commercial property as it will be in the trust structure, so with a 70/30 LVR in commercial this does limit my budget a lot for commercial. I also have some share options to the value of $100K that accrue over this year, however ideally I'd like to not sell these until the end of next year for CGT reasons.
My goal is to purchase in around 6 months so I'll be saving hard between now and then to increase my available budget.
If a property has a lower than 8% net yield at purchase then it probably won't fit my strategy, which removes a lot of Sydney/Brisbane/Melbourne CBD commercial property.
I have a good accountant, and a reliable mortgage broker who has assisted with my residential purchases. From my readings so far, it sounds like a specialised commercial property solicitor is a mandatory due to the complexity of lease agreements so I'll definitely need to add someone to my team here.
This is the order in which I'm looking to take my next steps:-
1. Research locations:- Look at yields, vacancy rates, demand, market factors (new projects etc.),
2. Determine type of property most in demand in selected location (eg. retail, industrial, office, etc.)
3. Decide on whether to build the property, purchase a vacant property, or purchase a leased property
4. Find a great commercial property solicitor
5. Start identifying individual properties (or sites to build on), with a focus on properties that allow me to add greater rental yields
6. Lift rental yields to revalue the property and leverage into additional commercial properties
With structure and modest capital in place, my first challenge is researching locations. My experience so far is that the masses of data available to residential investors doesn't exist for commercial. This provides both challenges and opportunities.
RPData have a CityScope product which sounds okay but seems to be very CBD focused, and more geared to agents looking to approach organisations as their leases expire. Nothing else seems very comprehensive or useful, particularly if I'm going to end up buying regional again. There is some data from the big commercial property companies, but again it's all focused on CBD office space markets.
Right now I feel that my best option is look at trends/infrastructure projects that will drive particular demand, then drill down on available lease data looking at the average time to find a new tenant, the cost per sqm to buy, and average cost per sqm to rent, the market cap rate for that region, etc.
My first questions to the forum -
1. What do you think I have missed that I should give more attention too?
2. Do you think I am making some incorrect assumptions?
3. Where do you find information about the commercial property market?
4. Any other wise words?
Thanks in advance team for reading what ended up looking like an essay, hopefully we can learn and succeed together,
Sean
