I all, please forgive what sounds like a stupid question from a newbie. It seems that most of us are looking for +cf propertys that offer good capital gains potential. When the majority of residential properties offer 3.5 to 5.5% (yes there are higher available but these are small in numbers) but commercial properites seem to start at 5.5% and are commonly about 8% even reacting 12% quite commonly i am surprised that i dont see more about them in this forum. They do have other advantage such as long leases and tenant pays outgoings as well. They would seem to be by far a better investment. im wondering however if perhaps its easy to get caught up with residential as the emotional (we can live in this) factor is probley stronger. Im i missing something here. Has anyone got stories on being burnt in commercial enterprises. Any feedback or thoughts would be appreciated as i am now seriously looking at this
Thanks in advance..Alan
You need large deposits firstly and banks dont like loaning money as much as they do on residential. The interest rate is higher on commercial loans. As the guy from the bank says to me you always need houses to live in. There is also the valuation aspect of a commercial property. The bank needs that valued (you pay, not in the case of residential) and they look at length of tenancy, type of tenant etc. to work out the valuation. But as you say there are some advantages.
I agree with Yack…
To purchase a commercial property you generally need a 30% deposit, which most of us starting out don’t have.
Also, although the return is higher, the risk is greater. There are many commercial properties out there crying out for a tenant to love them. [
]Shushar
“All our dreams can come true, if we have the courage to pursue them.” – Walt Disney
It’s true you may get a higher return/yield on Commercial but usually not as much capital growth. If you needs are current income (cashflow) then commercial may be worth considering. If you want future income then perhaps residential, with better growth prospects may be the answer.
Hi alan-Jay
Ive also been looking into commercial property as an investment , but the more i look the more i see vacant which worries me. Have found a few that look real good on the surface ,but the posistion is behind the main building out of sight of the public or hidden in acorner of a mall or on the second floor or posistions like that. The old rule is you get what you pay for! Although there seems to be more cashflow in commercial , i think its mainly in the higher price bracket properties.I thought I was wrong once, but I was mistaken !
Alan Jay,
It’s not possible to find out how many people are involved with residential and/or commercial properties that use this site unless you start a new post and ask that question directly. I would estimate that you will find the ratio of 96/4 .How many people out of 100 are looking to rent a shop/office/factory?
To enter into a commercial deal you will need approx 37% of the purchase price for your deposit,30% deposit and 7% stamp duty and on costs etc. That is if it’s in a major city or where finance will go to 70%.
You can buy a shop or factory out in the suburbs and take your chances, with a long lease and good tennants you may do OK. However if you want to (almost) guarantee you always have good tennants that want to renew their lease options you really need to be in a very good location.
This price bracket leads you into another world where people talk in the millions. Yes the reward is much higher, but could you sleep at night. Could you raise 37% of 1.5m. Why would anybody invest that kind of money if they only got 7% return?
That’s why 96%(my opinion) like to find 20K-50K to be in something they know about. If you think you can find a “good” commercial deal with that kind of deposit, I would suggest you use extreme caution.
Everybody to their own thing I suppose and if you decide to go commercial then I wish you good luck.Royboy
Its called RISK factor
1)The lowest risk being government bonds etc
banks
as the risk factor increases, so to does the potential gains or losses.So for example, residential property returns are lower, there risk might be medium, as opposed to commercial properties which are higher risks.
Domestic shares are less risk than international shares and so on.
The above are generally put into an order from low risk to highest.
AS others have mentioned, the commercial aspect might provide better returns (and greater risk factor!) but be warned, it is harder to lease, more costly to operate, can sometimes be difficult as the tenant might be a company not an individual and there you can open a can of worms….shelf companies, no asset companies…a web of umbrella companies and trusts.
Mind you thats at the big end. just my observations….
Elves
reminds me of a story from an old work mate. he had a commercial premise that they couldn’t lease. finally a dry cleaner or some sort of washing business offered him a fairly low rent with long lease so he took it out of desperation. as part of the deal he made significant modifications for this guys machines e.g. holes in walls etc. Anyway as you probably guessed the business went belly up after a few short months, leaving a badly damaged building, unpaid rent, and the kicker…. a gigantic water bill! His summary on commercial – never again. But I have heard of people making huge profits by finding tenants for their empty buildings and on selling. Gotta know what you are doing and have a bit of luck!
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>>So for example, residential property returns are lower, there risk might be medium, as opposed to commercial properties which are higher risks.<<
I beg to differ Elves. There are far less problems with retail shops than with residential tenants.
(I hope that I got it right in that you were referring to retail property when you spoke about ‘commercial’)Some residential tenants create havoc, give you apoplexy in addition to perhaps getting one into financial strife.
If one has a retail tenant the tenant knows that his rent is priority number one as he will lose his business if he gets kicked out.
Many such tenants remain in your premises for years and years and when the time comes they want to bow out they usually will find a replacement tenant to take their place (so they can sell their business goodwill).
If one is unlucky and gets a tenant who isn’t making money well you don’t want him anyway so what. Wait for the next reliable milk cow.
It goes without saying that it is absolutely imperative that one is aware of the three most important things to look for when buying retail premises.
Anyone who is thinking of going in this direction is welcome to email me and, for a payment of $ 1,000, I will be happy to disclose these three most important things which will enable one to select good retail property. [
]Let me see now. Thirty thousand members, even if only one percent of these is anxious to learn the secret of succesful sourcing of retail property I’ll collect somewhere around $ 300,000. [:o)] [:o)] [:o)]
Pisces
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