Hi everyone,[?]
Most of the posts on this web site discuss residential investing. What are peoples thoughts about commercial investing for positive income ? Do people think commercial carries too much risk of being empty ? Is it better to stick to residential ?
MJK
Simply put, commercial deals are just bigger residential deals………..bigger returns…..bigger risks……bigger cap gains.
You also need bigger deposits, as the lenders will generally only look at 60-70% lends.
You need to have bigger backup for longer periods of vacancy. However, if you have all these things, and have done due diligence for that site and it’s demographics, then that will get you out of small deals and into the big league.
Your choice – more risk more reward, or???
[
]Thanks Hilary for your reply. I wasn’t aware of the limits on the borrowing. The risk of a property being empty seems higher to me and if borrowing 100% using a deposit from a line of credit it would be riskier. Maybe comercial is for the cashed up people of this world.
MJK
Hi hillary
Why do you say bigger cap gains. In my experience the cap gains on commercial property are very much tied to the rent and the business climate.
What this means is that this type of property can actually go backwards considerably. Either because rents have to be discounted or because of vacancies (which can go for a year or longer) the property can not be sold without giving a major discount.
The other reason that the capital gains are smaller is that there is a limited market for this type of property and the majority of players (buyers and sellers) are in the know.
Another reason that com/ind has less cap gain is the building constitutes a much larger value (in comparison to the land) in the initial investment. The building then looses value as depreciation occurs. Remember land appreciates buildings depreciate.
Obviously there are exceptions such as developing a large lot inot smaller factories etc but I believe on the whole the capital gain is on a completely different basis then residential.
Cheers
COMMERCIAL PROPERTY REALLY DOES VARY GREATLY ON THE INDIVIDUAL PROPERTY.
EVEN IF RENTS ARE DISCOUNTED OR THE PROPERTY STAYS VACANT FOR YEARS ,THE PROPERTY CAN STILL GROW DRAMATICALLY WITH CAP GAINS EVEN THOUGH YOU NEVER HAD A TENENT.
THE RISKS ARE THERE THE SAME AS RESIDENTIAL, THE DIFFERENCE IS WITH RESIDENTIAL YOU DEAL WITH WINGERS AND COMMERCIAL YOU DEAL WITH CONTRACTS.AND THE CONTRACTS GIVE YOU MORE CONTROL COMMERCIAL.
I LOVE FINDING VACANT COMMERCIAL OR COMMERCIAL WITH PROBLEMS.
ALSO YOU CAN GENERALLY DO VENDOR DEALS WITH THIS TYPE OF COMMERCIAL PROPERTIES.
AH…..BUT YOUR MONEY MUST BE ABLE FOLLOW YOUR MOUTHJUST REMEMBER THAT WITH VACANT COMMERCIAL PROPERTIES, GST IS APPLICABLE. THIS IS NOT THE CASE WITH A TENANTED COMMERCIAL PROPERTY.
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