where to get over 6.5% return in commercial

[bornfree]

Hi all,
I am planning a career change and want to replace my current income with rentals from properties. I need to get at least 6.5% return and mainly interested in retail shops. Looking around Melbourne the yields are a bit lower than this, does anyone know if I can get higher yields interstate, especially Brisbane.
thanks in advance.

 

[Steve Navra]

I am planning a career change and want to replace my current income with rentals from properties. I need to get at least 6.5% return and mainly interested in retail shops. Looking around Melbourne the yields are a bit lower than this, does anyone know if I can get higher yields interstate, especially Brisbane.
thanks in advance.

What about SHARES??


Regards,
Steve

 

[keithj]

What about Listed Property Trusts ? They mostly return 6.5-9% & you can leverage 50-75%

 

[geoffw]

I am planning a career change and want to replace my current income with rentals from properties. I need to get at least 6.5% return and mainly interested in retail shops. Looking around Melbourne the yields are a bit lower than this, does anyone know if I can get higher yields interstate, especially Brisbane.

Agree with the others.

A big property with commercial is that long vacancies are quite possible- and that can really kill you Cashflow. Quite often capital growth is tied to income, so you may not have the upside there either.

Commercial Property Trusts may provide an income at a much lower risk than investing direct, and they may have some growth as well. Peter Spann suggested that rates of 9% are obtainable, along with 3% growth.

And if you don't know much about shares, there's share funds- Steve Navra's fund has had a stellar performance lately.

And there is also the possibility of a business if you are inclined that way.

 

[Medine]

Hi Bornfree,

Have you looked a bit further out in Melbourne? Say 20+ kms from the CBD? I haven't come accross any retail shops, but I've had some clients buying factories that are returning better than 7% lately.

Try keeping an eye on the Fin Review. They report commercial property sales and you'll be able to see where ther returns are.

Cheers, Medine.

 

[TomL]

What about lending for Mezzanine Finance - 20% to 100% returns

 

[geoffw]

I hope Steve doesn't mind me posting this- but this is the performance of the Navra share fund since July 1

 

[Steve Navra]

I hope Steve doesn't mind me posting this-

Hi Geoff,

No I don't mind

I think two points are salient and in context:

1)Yes the performance has been excellent; but the Market has been excellent too.
It is easy to do well in a market that is boiling over. We have achieved 4% better than the market in this time period . . . that is not so easy!

2) In relation to this thread: The question asked was about income:
We distributed 3.22% for the first quarter and the distribution for the 2nd quarter will be in excess of 3% so;
6% to 6.5% for the half year.
This together with the fact that the unit price is up to 1.12 (CG) might reperesent a good income opportunity as well as accruing some CG. (Also leverage up to 66.7% available)

Regards,

Steve

 

[geoffw]

. (Also leverage up to 66.7% available)

Now that's interesting. Tell me more!

 

[Steve Navra]

Now that's interesting. Tell me more!

The fund has been rated and approved by Colonial for a margin lend up to 66.7%

Example:
Investor buys shares of $100,000 and Colonial will lend a further $200,000 using the shares and the income as security.

However please be aware that markets fluctuate and there can be a margin call against fluctuating value at this level.

Mainly I suggest that my clients only margin up to 50%:
So for every $100,000 invested, you would only loan up to a matching dollar amount. (Another $100,000)

This way you would not receive the margin call unless the market declined by 33%.
(Which would be a HUGE decline . . . Sept 11th dropped the market by 15%)

Regards,

Steve

 

[Aceyducey]

Steve,

Any prospect of a protected margin loan facility on the fund?

Cheers,

Aceyducey

 

[Steve Navra]

Any prospect of a protected margin loan facility on the fund?

Hi Acey,

Anything is possible . . . but of course at an added premium

BUT, with the nature of Dollar Cost Trading as the risk management tool, why would you want to pay the extra??

Regards,

Steve

 

[APerry]

Bornfree,

You could also consider investing in a property syndicate. This gives you direct exposure to larger properties/portfolios of properties, usually for a set period. Some of these offer very good returns and tax advantages.

 

[Kristine..]

Hi all,
I am planning a career change and want to replace my current income with rentals from properties. I need to get at least 6.5% return and mainly interested in retail shops. Looking around Melbourne the yields are a bit lower than this, does anyone know if I can get higher yields interstate, especially Brisbane.
thanks in advance.

G'day BF

May I clarify a couple of points from your post?

You want to replace your current income with rental income from property.

Do you intend to buy the properties with borrowed funds or are you buying with your own capital?

So is the 6.5% return to cover the costs of the finance or do you have sufficient capital which if invested at 6.5% will provide you with an independent income?

Retail in the Outer East is generally offering about 6.5% net through to about 9% net, depending on size, location, lease etc

Generally speaking if purchasing commercial / retail you could expect to buy at about 7% net yield.

Obviously, this is about twice the current expected net residential yield.

I have noticed that a number of retail and also some office freeholds have sold very quickly in the Croydon / Lilydale area in the past few months. One office block sold within a week, good building, established tenants, long leases, around 8% net from memory.

Russell Bartlet has been the Commercial Agent at Methvens 03 9726 8888 for about 15 years (one of my favourite people, I rented my first shop through Russell), he might be worth a ten minute phone call, what he doesn't know about the Valley probably isn't worth knowing.

BF don't overlook the vacancy factor in commercial, however I have one to let at the moment which will return 9.6% net, so the vacancies aren't so painful after all!!

Good luck

Kristine

 

[bornfree]

Thank you everyone. You have been a great help. I will explore various suggestions. I have a few residentials in my portfolio and would like to have a couple of commercial for variety. Once again thank you all very much.

 

[Beach Bum]

Commercial property is a different world to residential.
Unless your reall sure of your stuff and know the area well, I would tread very carefully.

As for the graph, I do much better with my directly owned real estate (even though it depends on your circumstances, and mine are very different to most).

 

[geoffw]

As for the graph, I do much better with my directly owned real estate (even though it depends on your circumstances, and mine are very different to most).

14% in five months in today's markets? Not a lot of places are getting that.

 

[MJK]

Another point to consider with commercial is that some properties have excellent depreciation opportunities which can protect your profit from tax, unlike managed funds.

MJK

 

[APerry]

"Another point to consider with commercial is that some properties have excellent depreciation opportunities which can protect your profit from tax, unlike managed funds."

This is true, but some managed investments also provide pretty good tax advantages. The MacArthur Cooke property trust which is floating at the moment has a proposed return of around 9% and from memory I think its 100% (or close to) tax advantaged for the first year.

NB I have nothing to do with this company, have only a limited knowledge of the trust and aren't planning on investing in it myself. Its just an example.