Hi All
Just a quick one. I am just starting to look into possibly venturing into commercial property investing and thought I would ask if anyone can point out any pitfalls to watch out for when doing the figures on a possible deal. Any pointers would be greatly appreciated.
Delboy
Originally posted by delboy:Hi All
Just a quick one. I am just starting to look into possibly venturing into commercial property investing and thought I would ask if anyone can point out any pitfalls to watch out for when doing the figures on a possible deal. Any pointers would be greatly appreciated.
Delboy
Commercial reale state investment is very, very different to residebtial property investment.
The article at the follwoing link should give you some guidelines to getting started in commercial property:-
http://www.propertyupdate.com.au/articles/49/1/Residential-Or-Commercial—Which-is-right-for-you%3F
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 15,000 readers each month.
FREE subscription http://www.PropertyUpdate.com.auComercial Property is by no means harder than residential,just different. Don’t be scared off by it.
Once you buy right in an area with good flow of customers you cant go too wrong.As far as what to look out for in the figures,I would say double check what the tenant has to pay in the lease agreement ,then u can work out yr expenses, also check what the property is approved for (DA etc)(eg the council may not have approved it for retail use or office use etc)(it is not uncommon to find a tenant in a property doing unauthorised business)
Commercial tenants usually look after yr property better than residential as its their business and livelyhood at stake! So i personally think commercial is easier and less upkeep dealing with problem tenants.
Also many commercial landlords have a personal guarantee on the tenant so if the business goes broke the owner can still chase the outstanding rent for the remaning lease (even just untill u find another tenant)
Also they do all repairs,pay all outgoings(usually)(just specify in lease),& paint the property again after they leave! etc etc.
A few things to watch are:
If the tenant moves out it can take a little time to get another tenant(but usually not that hard if u bought in a good area.)
The agent will usually charge u 10% of the GROSS rents for the year just to find a tenant for u.(this can be a large chunk of yr profits for the first year of the lease.)
You can manage the property yrself quite easily as there is no maintenance on the owners part.
All the best DelboyWe’ve got 70 yrs on planet earth,Lets make the most of every day!
Luke Taylor | Hope Property Investing
http://hopepropertyinvesting.com
Email MeProperty Support,Strategist and Buyers Agent
Michael
Thank you for that article. Very informative. We do have the equity for the deposit on a small place we are looking at but would obviously prefer to borrow as much as we could. Is there any way around the 70% lending that you know of?
Delboy
You can get higher than 70% but the rate is quite a bit higher.
Do you have residential property to use as security?
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% 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 Delboy
Commercial property, unlike residential, is valued based on its rent return. Most investors “buy at a 7-8% return” which means a calculation of its value based on an annual return on investment.
So, loosely speaking, if a commercial property is returning $70K p.a. buying it at 7% would value the property at $1M.
Why is that important??? your best friend in commecial investing is a property valuer. They have rather more complicated means of determining commercial property values. They can also help you to renegotiate a more appropriate rental if it is not up to par.
Why is that important??? well, if you want to find a way to buy commercial property with lower deposit, you have to find a way to instantly increase the value of the property.
There are a few ways to potentially do this, but a good place to start is ask your Valuer to review the lease and the rent for you, if there is room to increase, then you will probably increase its value too.
Dont forget, it will more often than not be a valuers figures that help your financier make his decision. get in their heads, play the game using their rules, and find out how to manipulate the rules to help you win the game.
Eventually you should set some criteria and get out there and have a coffee with some commercial real estate agents. Educate them as to exactly what you are looking for (end of lease, unused yard space, specific zoning, held in the family for many years, can go to second storey etc etc) and the agents will bring opportunities to you.
Other creative ways to increase the value can be found in most good investing books.. enjoy your research.
freed@last
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