Commercial Property Update – Your Thoughts and Experiences

Hi There,

I'm not expert, but what I can share is my experience, what you can get out of it is up to you and don't take it as advice but just a "story or shared experience:

I started off like almost every other commercial investor in the residential side about 10 years ago, was relatively young at 22 years of age. Let me just say that one of the most critical and often overlooked mistake that investors who "graduate" from residential to industrial/warehouse/commercial property is treating it the same.

To summarise my experience:

Commercial:

– You will not witness capital growth rates like residential (at least not currently anyway). A lot of this has to do with the fact you need at least 30% minimum deposit on a commercial property.
– Waiting periods generally average between 2 months to 9 months based on my experience, you won't find yourself a raft of choices to choose over too like residential.
– On the positive side, returns are GENERALLY higher – my property is considered a lot return and even it returns 5.5% p/a. On all of my past residential properties, I got nowhere near this return.
– Beware and I stress beware of dilapidated buildings, unlike a house which can be rebuilt relatively easily and also fix relatively cheaply, commercial properties tend to attract more expensive rates for everything from electrics to plumbing.
– You'll almost need an agent, commercial leases are much more complex, difficult to deal with and most of all, time consuming.
– Even if the building is brand spanking new, I almost always feel even the average commercial tenant has more issues than residential properties.
– Current demand seems (and even in the near future) seems to favour residential (if you are already in the market). Most factories are either offshore or struggling and even so businesses, but living space is restricted and demand is high….no brainer there.
– Tenant quality is a very very important factor in the sale price of a building! Their leases/options and also ability to pay pretty much affects what the owner is going to experience!
– Agents get a much higher rate of return and also charge the bull for getting a new tenant (most charge 1 months rent's equivalent) and 5% of rental per annum for their agent fees. This is almost double the ones for residential!
– Not saying residential is any safer or better, but from the stories I've heard there was a lot more issues with commercial properties. I've also witnessed more winners in residential than commercial!
– Residential was in my experience a much more enjoyable one – one property I've rented out for 10 years had about 3 different tenants but the repairs were cheap (nothing beyond $1K), maintenance was minimal and also I could manage the property myself, sometimes I was horrified at the thought of not engaging in agents for my CP!

Hope you got something out of that.

Regards,

Willister.