I am currently looking at a commercial investment property which while negative return now within 24 months will be cashflow positive with little to cover in the mean time. Given that the return will be good relatively quickly I do not want to pass it up especially as commercial rentals are at a low point currently and this is a price location.
I have no experience in terms of capital growth of commercial property. Does anyone know of any sites that would provide this sort of information?
Check out a book by Martin Roth and Chris Lang "How Investing in Commercial Property Really Works." It covers the topic very well.
The website of Chris Lang (Gardiner and Lang) is http://www.gal.com.au. They have some fundamental info there. Maybe start there and familiarise your self with the basics as it sounds as though you will be making a decision in the near future.
It's good that you seek out such knowledge, because the fundamentals of commercial investing are different to residential. I trust the info above helps you with your question and assists with your decision to go for the deal or not.
There is usually little capital growth in commercial property until some of the market fundamentals change – ie Sydney CBD has been sitting on $8-10k/m2 for quite a while, so unless there is some new pressure eg rezoning to move to a more intensive use, then property prices will not fluctuate wildly over a given timeframe.
Having said that, prices will fluctuate according to yield (the main characteristic relied upon by valuers) ie if there are high vacancy rates then prices of properties will fall as the yield has raised reflecting higher risk exposure conversely a property fully let on good covenants to AAA tenants will have a low yield reflecting the stability of the tenant and the reduced risk exposure to the owner.
Areas which have recently suffered ongoing downturn due to the tech crisis (yes vacancies are still there) are now only just starting to turn around eg St Leonards, Chatswood & North Sydney however competition is growing due to external factors such as the new Chatswood Epping railway which will service the high tech area of North Ryde which offers larger floor plates than are available in areas much closer to the city.
Thanks for the input guys. Michael I will be getting that book as it is exactly what I need. Yes I am sorting out the structure on the deals this weekend. Basically I need to build a portfolio over the next 5 years as I will need to spend 4 to 5 million on a factory for my own business so I can look at owning my own factory rather than renting. Prefer to have some leverage than trying to do it without something behind us by then. I want the cashflow more than the property growth but I just want to understand all that I am getting into.
If that's the case, then own the factory independent of the business, charge the business rent (whatever makes sense – refer to your accountant/fin planner about structuring) – probably easier if you say that you have pre-leased to xyz p/l (self) than being owner-occupier.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
