Help on my commercial investment strategy

I suppose that depends on how much, considerable it is for you. The size of your inheritance. If it was a decent amount, your should change your focus from working to investing that money.

Firstly I would question have you bought any property at all period?

Secondly commercial lending is at a lower LVR typically then what’s available to residential 70% compared to – (80-95 with LMI)
There is also a lot more in depth legal advice you would have to do regarding your commercial leases.
Whilst outgoings might be covered. If a large Tennant was to leave your risk (whilst insurance can minimise some, if it is rent default) might be higher then with residential.
Its a lot easier to sell or rent residential homes then commercial tenancies.

What state are you investing in or seeking to invest in?

What area of commercial property are you looking to invest in.
Retail, industrial, warehouses, storage,
Personally I would go for the storage option. You purchase large amounts of land with storage facilities, houses are getting smaller, people have more junk, they will want access to their junk 24/7. You can also choose to run the business or let others lease it off you. And you retain future value should that area become ripe for development.

If you haven’t bought anything before. I would be buying residential and low value. Until you are sure you can identity value and know you are not paying too much.
Whilst in a 200k house or unit if you made a mistake you might pay 10k

If you make the same mistake with a 2 mil commercial property. 100k of lost value won’t be much fun.

Residential is way easier than commercial for novices. Why not buy one less property to start with and then use some of the money as cashflow for outgoings……better still why not buy one property to begin with…go through the process of purchasing and becoming a landlord then decide what to buy next….eg learn before you commit 100% of your inheritance…..

Sounds like you know a fair amount. Keep talking and learning but ask people who have commercial property not just residential. Good luck.

Hi Samantha,

If you haven’t done it already, invest some money first in education. I would recommend Steve’s property apprentice course for a good grounding in property investing. For a four thousand or so dollars it could save you tens of thousands in doing due diligence and going after right deal. The starting point of the course is working out your goals and what type of investor you are. This helps target your focus and run the filter over what you are looking at buying. You then also work out what you do and don’t have – time, capital, skills which you can leverage for the best return.
Read Anthony Robbins latest book – Money master the game. This is primarily American share market and 401K (their super type scheme) focused but has good general applicability. Basically it says to not invest in stock picking funds but in low cost market index funds.
You already have the concept of diversification for risk reduction, but this should be broadened to not just different commercial properties, but different property markets and different asset classes – shares, commodities, bonds. Another key is asset allocation between low, medium and high risk assets.

Regarding commercial property, I own a few directly in trust and super structure and many more through syndicates. To start with I would recommend investment in a syndicate where you get to leverage on an experienced team of pros who select and invest in generally large multi-tenanted properties. This decreases your risk of reduced income from vacancies, involves very little time and can produce reasonable returns of 8%+ capital growth with a medium timeframe – generally 6-8 years. You can also put smaller amounts of capital like $50-$100K, whereas direct ownership means your likely to put $100’s of thousands into a single deal, often with a single tenant so you have a higher capital risk both in the size of investment and reliance on a single tenant.

It also gives you some exposure to the whats involved with a commercial property investment. Steve McKnight is looking a re-opening the Passive income fund for further investors. Have a look at it as a property fund investment as it provides a diversified tenant base, in an alternate growing Market (the US) with an experienced team and the benefit of regular briefings and Q&A so you get to understand commercial property investment further. In 2.5 years the unit price has increased 20% and we’ve received a bit over 12% in dividends. You’re not likely to get the same growth rate in my opinion going forward but see if it meets your objectives and allocate a suitable amount of capital.

Wishing you the best…

Brendan King

G’day Samantha,

By the look of your post you have done enough research to see the best path to take so I agree with Tracey who said GO FOR IT. You’re smart, passionate and will no doubt learn what you need to to make it work. I do recommend starting of small with something you are comfortable with and slowly increase your portfolio to larger properties as you gain more knowledge and understand the flow of the transaction and management of a property. You can purchase commercial property starting from $50,000 like a car park all the way to multi-million dollar logistical centers, the skies the limit. There’s allot of talk about starting of in residential because it’s easier than commercial where I tend to disagree. There is no point learning residential if commercial is your final goal, you might as well spend time learning what you need too and make it your strength. Commercial property isn’t riskier than residential it’s just different, however allot of the fundamentals are the same. Like any investment there are risks, you just need to know what they are and how to mitigate them. The perceived risks in commercial are sometimes strengths i.e.

– There is a lower LVR in commercial property. This is true however the Value of the property is generally based on the income it receives and not what the property next door sold for. This could work in your favor if you could find some ways to increase the rent of the property, which increases the value which in-turn you can put less money in to the deal to purchase.

– You could be left with a vacant property. This is probably the larges risk with commercial property however to offset this when you do find a tenant it’s not uncommon to sign a 5 to 15 year lease plus lease renewals where as residential is maximum around 1 year.

I hope this helps and would be interested in how you progress.

Kindest regards,

Brian

http://www.commercialpropertyinvsestors.com.au

Thanks Christian,

Too much typing not enough grammar checking.

Kindest regards,

• This reply was modified 9 years, 8 months ago by  Brian.

Hi Marcus

I did the RESULTS program and am still using what I learnt regularly in our property investing activities. Check out my comments from this post in 2011 as they are still relevant https://www.propertyinvesting.com/topic/4403010-results-program-2/#comment-232241

I know someone who did the Bob Anderson course and found it good although they haven’t actually used any of their learning.

Cheers,
Tracey

Wow! Lots of good advice in the above posts. I would agree with all the sentiments. Only thing i would add is – write a Business Plan – in this instance a Commercial Property Business Plan – with a whole bunch of specifics. On the advice of Steve McNight – I did – and i found the process gave me tremendous focus for the journey.

According to my opinion residential is way easier than commercial for novices. Why not buy one less property to start with and then use some of the money as cash flow for outgoings.