Hello,
I am thinking of buying a warehouse for my business, but I want it to also act as an investment too.What are the return figures for commercial real estate, what is the growth like? Is there any higher risk involved with this time of property as opposed to residential? Any info would be greatly appreciated.
Any links etc etc
Thanks everyone.
MikeYou could try the Valuer General’s Office in the state you are searching. The sales data office should be able to sell you the latest value watch summary on the area you are looking (unless you look in small country towns). If the commercial real estate makes up the whole subburb then the report will be helpful to see what capital growth there has been over the past year.
When reading through Steve’s book, 0 to 130 Properties in 3.5 years. pg 160, he states, “I expect a Cash on Cash Return of over 15% per annum for residential real estate and 20% for commercial property.”Good Luck
DebCommercial has a lot of benefits over residential. One main benefit is that the supply of buildings as the asset value goes up is much greater. How many 3 million dollar homes would you want as an investment property. But a 3 million dollar commercial property sounds like a great retirement fund.
There are higher risks with commercial, because they can be harder to rent if they become vacant. This may be reduced somewhat if you are running your own business, but if you grow out of the property, sell the business or the business folds you’ll need to rent the property out pronto.
The banks will mostly only lend 70% on a commercial property (i’m sure there are exceptions) and capital growth on commercial is generally not regarded as being as good as residential. It is slightly more complicated and you’ll need good advisers – but you should have these anyway, right?
However you get long leases with excellent conditions for the owner, virtually zero maintenance costs (what can go wrong with a shed compared to a 3 bedroom two bathroom house and yard) and much better rental return (although not so much at the moment)
Talk it over with your accountant and they may suggest buying the shed in a different legal entity to help with tax planning and in case you decide to sell the business and keep the shed. A lot of people make money buying vacant commercial property, starting a business in them and then selling the business as a going concern, pocketing the money for the business and locking in a tenant on favourable terms at the same time.
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