First time commercial property investor

Hi, you probably need to form an opinion on how easy/hare it'd be to find another tenant. Often, the existing tenant stays on. The profitability of the existing business is the most impt. If the tenant is making money, he's unlikely to move. Even if he moves, he sells the business to another person.

Hairdressers are probably the most lasting tenants. My experience is this: I'd a couple of tenants who were rather laidback. She was paying rent on the dot but the rent hadn't been increased for ages. We had to put the rent up. She sold . The new tenant wanted a 17 year lease. His business is so good there's not enough parking for his customers.

The rent of the shop vs the neighbours' shops is also very very impt. You need to find out if the neighbours are paying $600 pw.

I'd a shop vacant for 18 months. The other one was leased in 2 months & we didn't have to drop the rent.

You're looking @ a fairly good yield on this one. Might be worth following up.

Good luck,

KY

Another aspect to consider is some lenders want principal and interest repaid over say 10 years.  This can have a detrimental impact on your cashflow

Hi, my experience with lenders is such that I can probably write a book about how the banks decided that I didn't have the means to repay.

I take whatever loans I can get. Sounds like a broken record. When RESI said I qualified for a 500000 loan in 2000, I asked when do I get it, where do I sign? Remember back then, that was a huge loan.

The loan is less impt than our own knowledge of our ability to manage. I'm now on a 9.5% balloon loan [12 months] I took it cos I was supremely confident I could repay & I could make a return to justify the interest.

When I bought the commercial properties, I used the equity in the houses. The shops were never collaterised. The lender increased the LVR to 75% to give me more borrowing but they were so slow I used my cash savings. I was on high income then.

Back then, I didn't know that there was such a thing called a strategy for property investment. It just seemed the logical thing to do. And the cashflow from the shops was so strong that it was a stressfree thing.

I've skipped blithely from collaterising resi property to buy commercial & when the cashflow was established, I collaterised the shops to buy resi properties to subdivide & used them to get a business loan for the building.

So the most impt question is : is the commercial property worth buying? Then just take the best loan that you can get. Then work on getting to just above cf+ [usually through repayment]

Then sit back & relax until the next step.

Good luck,

KY

Hi Guys,

I'm a commercial property sales and leasing agent in Sydney. I've been doing it for around 8 years and I'd like to share some insights for those that are interested:

– Investors with property valued between $300k and $3mil rarely do well with industrial or commecial (office) investments in my markets.

– Property can easily stay vacant for 6-12 months while looking for a tenant. A quick search of my listings shows that I've got over 120 properties that have been vacant for over 9 months. I've got a couple of small strata units owned by individual investors that have been vacant for over 2 years! This is even after we have reduced the price by 50%!

– Tenants expect incentives by the way of rent free, or cash contributions to their office fit-out to lure them to a property. This is generally a MINIMUM of 1 month per year, but can go as high as 4 or 5 months. So on a standard 3 year lease you can expect to offer between 3 months and 12 months rent free.

– Tenanted investments are often offered at above-market rentals. The owner will put a tenant in place for 3 years, offer them 1 year rent free at a higher figure then package the investment as showing an 8%+ yield without revealing the rent free period. When the property settles the owner will top up the tenant for the outstanding rent free payable. Remember, the document detailing the incentive is not attached to the lease.

– While a "typical" commecial lease passes on the cost of the outgoings to the tenant this is becoming less common due to the state of the market. Around half of my transactions now involve a "gross" lease whereby the tenant pays the rental and the owner pays the outgoings.

There is money to be made in commercial, but the real opportunities are over $3mil where you are attracting larger, higher quality tenants and you are not competing with as many investors to secure the opportunities.

Any questions please let me know, I'm happy to help out.

No problems.

If you've got a tenant in place my advice would be:

– Maintain communication regularly and make sure the air-conditioning is working properly. You'd be surprised, but this is the biggest complaint we get from sitting tenants. A tenant isn't going to move just because the air-con doesn't work well. But it will make their day to day life less comfortable, so when an the lease is coming up and an opportunity comes up to check out other properties on the market they'll jump at it.

– Don't be soft in rental negotiations. Research the market before you approach your tenant to renew, most agents will give you honest advice on what to expect. I would start talking to them 12 months from lease expiry, and if I didn't have a commitment for them to renew 6 months from lease expiry I'd start marketing for another tenant. This will often push them to get their act together. If you're nice and let them float on a month to month you will lose out.

– Just because you're a nice landlord doesn't mean they won't bullshit you and move out. Commercial is all about the numbers, if the location isn't quite right or they have outgrown the space they'll move. If you can get onto them early before they've had a chance to think about it in detail you can sometimes get a commitment to renew the lease without any troubles. So start talking to them early.

Hope this helps.

Cheers,

Doogs.

In another post I have discussed my intention to enter into commercial investments for the first time.  I was feeling confident about it until I read this post about the dangers.  I can get a freehold for around $1.2m.  I have a lot of equity so can borrow the lot from my bank at a rate of below 6% if I put my house up otherwise it's below 7%.  They are for shops and based on the returns of around 8% net I thought it would be good as up to now I only invest in excellent residential houses/locations.  It has been great for me over the years and I currently live comfortably off the income.  My equity is significant around gross $3m in value with a $450k loans so plenty to borrow from.  Not been into investments outside of bricks and after the credit crash I'm glad.  I don't have anything in super either but as I say I live off what I rent ……basically 3 valuable properties besides my own home.  Not sure what to do next…..What do you reckon?  Is something like a Westpac trust worth pursuing?  Perhaps I should meet a good financial planner? Or perhaps do nothing?   I guess I'm a dyed in the wool natural capitalist until I die so I should do something.  Cheers Carpe
Carpe