Hi guys,
this is my first official post although i have been an avid reader of the forum for a while now. My question relates to commercial property vs residential property.
I have done a lot of searching on the net and through papers and even spoken to RE agents. In general, it appears yields on commercial properties are higher, given that the rent amount is often quoted as net.
Is this the case and if so is there some reason for this. I am aware of the risk/return trade off so does this mean the risk associated with commercial property is higher eg: lower CG or greater vacancy rates.
I would be thankful for any comments, positive or negative, you may have.
Cheers
hi dinglc01
The risk is not higher its that the bank will only lend 60% on commercial and if vacant the time between tennents can be long depending on the site.they are oranges against apples not the same type of investment.here to help
GR is right.
Most people start with residential. It is liquid, tenanted easily and most importantly can be bought with as low as a 5% deposit plus costs.
Some will move to commercial. Dazzling is one and you should read some of his posts. Commercial will have less hassles when tenanted and often higher returns. But there can be delays between tenants and you cannot borrow as much.
Often the better commercial stuff is the more expensive making it out of the reach of many beginners.
Worth learning about and I am doing so at the moment.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 75% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi
It depends on your strategy – do you want growth or income ?
I need the income so they work for me as I find that any capital growth is a bonus.
They fit nicely into a balanced portfolio.
There is some good free information on Commercial property investing at http://www.gal.com.au.
Regards
AlistairWhen you are looking at commercial property you will find that blue chip property has a far hgher entry point than residential. The second point is that if you purchase a commercial property and it is returning 10% that means that if the rent was $25,000 per year then the vaulue would be $250,000. What is this building worth if you loose the tenant. Lets say you re-rent the building for $15,000 per year, does this now make trhe building only worth $150,000?. In residentional the value is based on land, not returns and that is why the banks will only lend 60-65% on commercial property. If you are interested in commercial look at an syndicate that may buy a shopping centre. The larger the purchase the higher the retuirn and generally less risk.
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand Property Researcher and education seminars
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Thanks guys,
some useful points to note. Interesting idea about the sydicate, I will have to check around.
Cheers
Craig
Craig, Nigel’s point is a very valid one. Often you may pay an inflated price for a good tenant, as commercial is generally return-orientated. Another thing to consider, is the potential GST issues. A standard PAYG (non-GST registered borrower) may pay GST on the purchase price, however the lender will nett the purchase price for their lending calculations
ie: PP $220,000 (GST Inc) = $200,000 nett.
You can get up to 75%, more commonly 70%, therefore you would require $60k to meet shortfall PLUS $20k GST.
You should speak to your accountant, as GST registration before purchasing will entitle you to claim this back. However many commercial properties being tenanted at time of sale can be sold “as going concern” meaning you may be exempt from GST.
If you’re looking at starting out small, small office apartments (strata titled / non-serviced) commercial units are a good starting point, as they can be fairly reasonable, good return and usually easier to obtain a tenant.
Regards,
RobRob Whyte
Certified Mortgage Consultant MIAAPrincipal & Licensee
The Mortgage Gallery
e [email protected]Winner 2004 National Office of the Year!
Accredited with over 27 lenders nationally. 15 years experience in commercial and residential lending, ask me anything, if I dont know, I’ll find out!
Hi there,
I read recently in the API that the lowest entry point commercial real estate in Australia is currently strata titled offices which are predominantly owner occupied as interest rates are still considered relatively low and corporations are snatching up strata offices while rates are still down, rather than tenanting. This obviously makes it more difficult to find a tenant, but the name of the game is to solve this problem by either on-selling to a high-demand of companies seeking to buy or by pre-qualifying stable tenants prior to settlement and turning the problem into the solution for great profit. I would think that with a low commercial prop. entry level and the lower leveragability of this form of investment, the risks are easily mitigated.
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