First Commercial Purchase Experience & Start

[buzzlightyear]

Over the past few months, I have started to seriously consider a commercial purchase for my next IP.

Of course, not being as familiar with this as the resi market, finances and the general market will mean this will not happen next week, but I am keen on building my knowledge in anticipation of overcoming these.

So for those who have commenced their commercial IP (CIP) portfolio

1. How did you choose between the commercial sub-categories ie retail, office, industrial/warehouse, hotel/leisure.

2. Given the higher deposit required for CIP, how did you access these funds?

3. Somewhat related to 2, how did you decide what initial price point you would be looking and be comfortable with? eg did you start with something modest initially and then trade up or did you wait until you could afford the property type you were ideally after?

4. How did you vette and research locations for your CIP?

5. Did you utilise educational resources to assist or was it 'learned on the job' so to speak?

6. Anything in retrospect that you could identify as being your biggest mistake? Alternatively, your best decision?

Look forward to everyone's resposes.

 

[PrimeCommercial]

Over the past few months, I have started to seriously consider a commercial purchase for my next IP.

Of course, not being as familiar with this as the resi market, finances and the general market will mean this will not happen next week, but I am keen on building my knowledge in anticipation of overcoming these.

So for those who have commenced their commercial IP (CIP) portfolio

I'm also keen on increasing my knowledge of the commercial paddock, both for investment purposes and for future career prospects.

I havent commenced my CIP portflio but have a few ideas that no doubt you have already considered but I'll add a couple of points I found worthy of noting.

1. How did you choose between the commercial sub-categories ie retail, office, industrial/warehouse, hotel/leisure.

A key point I found interesting when reading thru one of Chris Lang's web sites was the different cycles that they run in.

The office space runs in approxiamate cycles of 18 years from peak to peak where as industrail ran at peaks of ~9 years and retail has the shortest cycle of ~6 years.

2. Given the higher deposit required for CIP, how did you access these funds?

With the ~30% deposit required a fair amount of equity is needed but I dont find too many people making reference to lease incentive's for new tenants. Up to vaule of 6 months rent made up of a combination of fitout contribution and rent free period may be needed on top of the deposit.

 

[Dazz]

Hi buzz,


See below.

1. How did you choose between the commercial sub-categories ie retail, office, industrial/warehouse, hotel/leisure.

Had no clue. Chose industrial cos it suited my personality. Didn't wish to deal with knobs in suits demanding everything at the drop of a hat. Had enough of that from where I had come from.

2. Given the higher deposit required for CIP, how did you access these funds?

I've been X-colled up the wazoo. Only way I found to buy stuff with no cash input from myself. Pop the Bank's straight jacket, see how it fits. Get nice and snug in it. You very quickly learn to hop around like a no arm bandit, like John Cleese in that Holy Grail skit when he is playing the Black Knight.

3. Somewhat related to 2, how did you decide what initial price point you would be looking and be comfortable with? eg did you start with something modest initially and then trade up or did you wait until you could afford the property type you were ideally after?

Had no idea about price. We threw a dart at the board. The only criteria was that it needed to pay for itself. It also had to have everything done - that is, nice building, tenant installed, lease fully signed up. We knew absolutely nothing, so were happy to pay someone else to have done all of the hard yards for us. Knew we would make a bunch a mistakes on the first one - and we did.

That strategy, whilst giving us alot of comfort at the start, has proved to be a dreadful decision....and it remains, despite being in a good area, the worst of our CIP investments by a long way in terms of capital growth and income growth.

We pay heavily every day in lost potential for being so timid.

4. How did you vette and research locations for your CIP?

No idea. We aren't that organised or systematic. Still aren't. REA's eventually got to know we were serious and started passing stuff across our desk. We eventually said "that one". It definitely wasn't the best, but oh well.

5. Did you utilise educational resources to assist or was it 'learned on the job' so to speak?

There wasn't a cracker around that I could find. Still is bugger all. Everything has been learnt on the street. The experienced wily old chaps who've been playing the game for 40 years won't tell you a thing.

I hope to rectify that quirk this year.....anshallah.

6. Anything in retrospect that you could identify as being your biggest mistake? Alternatively, your best decision?

Biggest mistake - was definitely buying our last house. Could have bought acres of industrial blocks back then for a song. Didn't get in early enough.

Best decision - finally jumping investment ponds despite being absolutely petrified of the big barracuda's that swim in this pond, who will chew you up and spit you out before you know what hit you.


Can't wait to hear from the more experienced forum members like joanna, keithj and nonrecourse.

 

[JoannaK]

i can't add that much to this thread, we built our commercial properties and the location dictated that they be retail and office.

what i can say though is that now we're in the commercial arena i'm pretty sure we'll be staying in it for the long haul (from an investment point of view - we'll still develop resi but limit our holdings). We've found it to be an excellent contributor to the cashflow, and afterall, cashflow is king.

 

[asdf]

and afterall, cashflow is king.

You're not wrong there. I'm hearing some values around Syd CBD area are dropping by 50-70% compared to 18 months ago. Guys knocking back $100M for developments 18 months ago struggling to get even $40M. So whos cashed up... or ballsy? Bring on the 90s, not that I was around then.