How did you start?

[oracle]

Again, in my view, that may be some time away so, if I was starting again, I wouldn't be in a rush to gain the biggest exposure possible as quickly as possible if it meant compromising on cashflow. I would happily trade off less exposure for greater income and use that income as a form of leverage, allowing you to buy more, sooner, with better cashflow in a nicely virtuous cycle. It may be a strategy that would seem to start off slower but it wouldn't be long, in my view, for it to overtake a resi strategy with worse cashflow. Of course both of these are passive strategies - if you choose an active investing path the world could well look completely different.

I understand cashflow is the life blood for any leveraged investment. But when you are in accumulation stage isn't it more appropriate to make sure you try and maximise your CG potential first. Remember every dollar you make from CF positive investment depending on your tax bracket you might be foregoing 40cents in tax. That is 40% of the money lost that could be re-invested and compounded. So now your investment returns needs to be even higher to achieve the same level of net worth increase.

Further to all that, I would also stress that a 7% gross yield on a RIP is a very different experience to a 7% net yield on a CIP. I can't count the number of times I have seen both myself and others under-estimate the true cost of ownership of RIPs. Totalling up the real numbers at the end of the financial year soon makes the difference very clear...

You are happy to point out 7% gross yield on RIP is different to 7% net yield on CIP. But you conveniently forgot to point out that cost of borrowing for CIP is usually 100-150 basis point higher than RIP. Your point is only valid if both properties were bought outright, which rarely is the case.

(PS: I am by no means saying one is better investment asset class then the other. At the end of the day it all boils down to your investment temperament and circle of competence. Anyone can achieve outstanding returns with any asset class once they master the art of investing in it.)

Cheers,
Oracle.

 

[Ausprop]

I understand cashflow is the life blood for any leveraged investment. But when you are in accumulation stage isn't it more appropriate to make sure you try and maximise your CG potential first. Remember every dollar you make from CF positive investment depending on your tax bracket you might be foregoing 40cents in tax. That is 40% of the money lost that could be re-invested and compounded. So now your investment returns needs to be even higher to achieve the same level of net worth increase.

personally I would rather make money and pay tax and it is a myth that comm property doesn't have CG, my comm has outperformed resi by a long shot

 

[Wunderbar]

personally I would rather make money and pay tax and it is a myth that comm property doesn't have CG, my comm has outperformed resi by a long shot

That is true. But I think he's saying he'd rather have CGT rather than personal income tax.

 

[oracle]

personally I would rather make money and pay tax and it is a myth that comm property doesn't have CG, my comm has outperformed resi by a long shot

Show me where I said CIP doesn't have CG?

Your statement has got nothing to do with the point I was trying to make. It by no means proves CIP is a better asset class than RIP. I can show you better returns achieved from RIP than CIP. Does that prove RIP is now better than CIP?

My argument is solely about maximising the amount of money being compounded as over the long term it can make a huge difference to your net worth.

Current tax system laws favour a strategy of CG over Cashflow anyday when trying to increase your net worth.

Finding assets that will give outstanding CG requires superior skills and is a different topic altogether.

Cheers,
Oracle.

 

[Kristine..]

G'Day Aaron

It's all in the deal

Residential property v Commercial property is not an argument in itself

Obviously, there are very few $5,000,000 residential properties available for lease whereas there are sufficient $5,000,000 commercial and industrial properties to have established a good data pool and reliable profiles of ‘industry norms’ ... in at least the markets with sufficient statistics and activity to provide these benchmarks

But apart from a statistically very small group – and as individuals who lodge a tax return claiming rent income from more than 6 investment properties is only about 12,500 people in a population of 24 million, the people who can realistically afford to buy office blocks, warehouses, shopping complexes are very few

My experience with three commercial properties is similar to my experience with residential property:

It is not the wiz bang property which provides the greatest return and not the wiz bang property which shows the greatest growth

It is easy to pull examples out of the air, or to quote one transaction and draw the long bow that all properties in that category will therefore behave in the same way

Returns from commercial property are not as glamorous as they may appear – for starters, I am paying 3% more for commercial mortgage loans than for residential mortgage loans. OK, 3% of what? Capital growth, while gratifying, has been very similar across the past ten years for two otherwise comparable properties ie each started within a few thousand dollars of each other, each produce steady rent, and each are now worth within a few thousand dollars of each other

I enjoy having the commercial properties but in both instances (sold one in 1994) I bought the properties for owner occupation and therefore chose to suit my operational needs of the day.

This was obviously a good way of buying as both properties have been rented consistently over the years – which is not to say that all tenants have been financially viable, but that each tenancy is quickly followed by another.

Our residential investment properties have also enjoyed a degree of popularity with consistency in tenancies but the hallmark of small commercial facilities is that the tenant is more likely to be a start up business and therefore more economically fragile

But the question is ‘How Did You Start?’

‘How Did You Start’ implies that the goal was always commercial but for us this was not so. We bought commercial because the opportunities presented themselves and we had a need for the premises.

If I had not had businesses I would not have even looked for commercial. It was having businesses and requiring premises which put me out into markets I had no knowledge of. After renting commercially for two years I bought the first premises, and after that, wherever I operated a business I either tried to buy the premises, or bought premises and then moved my business to that location

Commercial ties up a lot of equity. Commercial has more onerous lending criteria and higher interest rates. Just because the tenant pays for the rates does not make it a good deal.

I am happy with our various investments but looking down the track, I still firmly believe that the ‘old fashioned’ investment of a block of flats is one of the best investments possible and if I have a real estate investing goal it is to have that block of flats.

Other than that, Aaron, why would you ‘liquidate’ any investments? And why would you pay down debt? With very few exceptions, surely the aim of the game is to have it all, and to not cull the herd until your requirement shifts from growth to income?

The issue is neither commercial nor residential. The issue is investing to suit your own capabilities, your own goals and your own preferences.

My preference is to invest in property rather than in other types of investment. My capability is to be flexible as to what I have seen as ‘opportunity’ in times past and what I will continue to see as ‘opportunity’. I am also capable of making a commitment and holding to that commitment steadily over years. My goal is to eventually provide an independent income for Mike and myself. How that goal is structured remains to be seen. It will evolve as our circumstances and requirements change over time

Opportunity is opportunity.

Provided you answer the door when opportunity comes knocking it does not matter one iota what colour jacket the opportunity is wearing

Answer the door. Go with the flow. Commit yourself and live up to the commitment.

It’s easy but very few people do it. I have always wondered, 'why not?'.


Cheers
Kristine

 

[lizzie]

You are doing well to get 6 - 7% net on resi - as that would be 8 - 9% gross at least, if not more. If you don't mind me asking - what price point is this?

newcastle, inner middle ring suburbs, solid 1970/80's brick units.

As an aside, when did you observe this in Japan? I was last there in 2008 and did't see this, though admittedly that was quite a long time ago now.

a documentary on sbs about the changing face of retail shopping.

p.s. great post kristine ... i'm looking at commercial for similar reason of requiring premises. kudos (but apparently i have to spread myself around first)

 

[Telejazzer]

The very first property investment that I did was part of my SMSF invested in a commercial property syndicate via trust if this qualifies.

After a failed attempt to invest in a residential, pre GFC which almost ended up in a disaster, looked at residential property development, did contract work to a couple of companies selling residential properties off-the-plan marketing them as investments maybe just to prove that I can do it.

I've now decided to pursue a role in the commercial sector of property, start investing once I have the ability to service the debt and looking to do commercial property development in 3-4 years time.

Currently doing a property uni program which I enjoy even though it's tough. I look forward to start my investment portfolio either through property syndicate or direct investment next year hopefully (fingers crossed).