Always better if you are not a 'motivated seller'.

Good for you on being able to hold.

Best wishes

G’day Michael,

There are certainly some areas with a lot of unsold and unleased stock. This applies to various areas of Sydney and Brisbane; I am not as familiar with Melbourne.

I would certainly not be buying a commercial property at the moment unless it came with a long lease (5 – 10 years), has a 6 month bank guarantee (bond) in place and I can find out enough information about the tenant, their business and stability to feel confident that they are traveling ok. The 5 to 10 years depends on the specific areas current or looming supply situation and what kind of market reviews and lease terms apply. For example; a seven year lease to a national tenant, with 3 – 5% fixed annual increases and a ratchet clause (rent cannot decrease) may be sufficient to ride out the current bumps in the economy.

Unsold and unleased stock in any area will put downward pressure on capital values and rents. As with an oversupply in residential, the more motivated owners reduce their sales prices and rents to facilitate a transaction rather than keep the property on their books vacant or unsold.

In many areas there is an oversupply of smaller strata industrial units or sheds. I see this as quite risky at the moment as these will be harder to sell or lease. (I.e. < 400 – 500sqm)

Sydney industrial sector has approx: 5 – 6 regions. The outer west region (Erskine park  and surrounds) has the most industrial land available to be developed however, most developers at the moment want tenant pre-commitment before they start building and certainly their banks demand this, even for established developers with a sound track record. (So minimal spec developments going forward). There is more of a glut of older stock for sale and lease in the central west (Smithfield and surrounds), I would be very careful around there.

I agree that the commercial cycle has traditionally followed the residential property cycle; a buoyant commercial property market relies on a buoyant economy. If there is a lot of a residential construction going on, then in turn, manufacturing, warehouse and distribution companies expand and need more space. Also new residential construction causes a demand for shops, places to work and other infrastructure etc.

Catch 22 at the moment, you want to buy when things are low however, you do not want to buy a commercial property only to have it vacant for a year or so if the tenant goes bust. Also you do not want your rent to go down at the next market review as may happen if there is a glut of properties around and rental rates have been forced down.

Whilst we may not move into an upward cycle for a couple of years, the financial crisis is causing some vendors to sell at very low prices. This coupled with there being few willing buyers in the market at the moment is presenting some good opportunities.

Generally with commercial interest rates at around 6% and net yields at around 9% (more for some and less for others) there is good scope to buy commercial property and achieve a very good positive cash flow.

There are many factors and scenarios to consider on a case by case basis.

Happy for you to contact / call me directly if you want to run a few specific scenarios past me.

Stu_Macca

It may be the conservative in me, (and I don’t buy in mining towns), however, when house prices there reached $350k I thought it was overpriced.

Be very careful when riding a bubble (and prices in Moranbah) are just that. The intrinsic value is not what you paid for it.

The cash flow is great but what is your medium term plan and exit strategy?

Don’t be the guys holding the bag at the end of the line.

How do you get paid?

By the developer / builder or purchaser.

A buyers agent represents the purchaser to acheive the lowest possible price for them.

Just to clarify, who will you be representing?

Hi Damian,

Feel free to give me a call to discuss.

As far not being the right time to invest – I disagree.

Injections of capital into banks and other corporations will help the current economic turmoil. (Which is currently occurring) and right now, the greatest investor in the history of the world has spent US$15 billion on investment within the last week and is set to spend another US$25 billion in coming months. He has invested heavily in General Electric, Goldman Sachs and Constellation Energy, in addition to huge investments in Wells Fargo Bank and US Bancorp. Yes, the world’s smartest investor is ploughing billions into the US banking system! Is he crazy? Yeah!… like a fox. Warren Buffett knows exactly how this will play out.

History has shown it is possible not only to survive — but to prosper — in these times.

During the great depression, huge fortunes were made by many. The Kennedy, Rothschild and Rockefeller families all dramatically increased their fortunes throughout the depression. But it wasn’t just the rich who got richer — many ordinary citizens found a way to not only survive but thrive during a poor economy.

Aussie banks profit from credit crunch
“The average profit margin for the major banks was 54.8 per cent in the March quarter, more than double the long-term average return of 26.9 per cent, according to official figures from the Australian Prudential Regulatory Authority. That equals more than $1 profit for every $2 in interest and fee income charged.

Currently I am seeing (and buying) some absolute bargains out there in the property world. If now is not a good time – I wouldn’t know what was!