3m spend buy one or multiple? Historical growth vs gentrifying suburbs?

Great questions.

Not sure how to compare with other investiments (didn't have much else until few months ago, and also IP is leveraged, other investiments are not).

It has made money cause we managed to quickly build a solid offset (150k) bringing the interest down a lot. So, we make like 10k a year at the moment.

I guess, given the conditions, a bigger property wouldn't have returned the same, since I think smaller properties have higher rent to value ratio. But an increase of 5% on a 500k property is way lower than 5% on a 1.5M.
So... Hard to tell

 

this is correct and why commercial or a nice PPR is the only real option once you have 7 figure sums to park. A nice PPR will compound in value CGT free and you can get a 100% offset against it to park Surplus funds.

Commercial property gets you a fantastic passive return for little headache once you have a good tenant. Beanos strategy - just buy a big one, generate huge rent and live off the rent/pay down debt aggressively. It’s no different to owning a well-oiled passively run business and collecting the profits each month.

Commercial RE also can generate high growth..

My childcare centre (purchase $1.4m sep2020) recently revalued @ $2.3m after a market review and exercising of an option. My industrial
Property (purchased $1.5m in July2019 recently revalued @ $3m) after a minor capex incentive to a tenant resulting in 30% higher rent. I am currently through a retail centre redevelopment where I should easily double the circa $3.5m Purchase price .

On ungeared purchase prices, my yields are around 12-15% once I am done with the value add. This enables uplifts in value and recycling of equity into the next project.

While you need large initial equity sums to do these projects standalone, there are plenty of REITSs and syndicate that’s will generate 8-10% nett of fees. Why you would bother with small resi investments once you have $3m cash is beyond me.

 

Yes ...when you look at net profit per hour of your time the return on commercial is fantastic .
Residential is a lot of hard work with little income reward.

 

It's a strange situation that the property that makes the least ,has the greatest risk and has the most work makes the least while the property that makes the most has the least risk requires the least work

 

Also you never bank your profit in resi development until you renovate it, market it, have it vacant, stage it, sell it, pay Gst and CGT... if u get caught in a slow market the temptation is to take a hit and sell low

commercial can still be tenanted and passive while you go about optimising it’s potential . You usually can wait for the best sale price too as it’s still generating income month on month... or if you create enough uplift and buy well... why even sell commercial... keep pulling equity out and buying more

 

Yes why sell commercial ?
The income is more than you ever need and even a small growth each year is enough to pull equity out.

 

Very interesting.. I always thought commercial properties growth is a lot less than resi..

 

that would have been likely a 40-50% LVR. So perhaps 300% return on equity + 10% positive cashflow during the holding Period. Private developers can achieve even higher returns.

It’s a totally different asset class than resi and far more interesting IMO.

The passive / fully leased deals are too pricey in this current market. The growth comes from repositioning an asset - but for that you do require access to significant cash/equity, leasing contacts, plus a bit of luck and nerves of steel... but the payoff well worth it

once you pull off a few, and have a relationship with a commercial lender, they will back you more readily.

 

I guess if commercial is that much better from CG and rental perspective, why residential?

 

Resi has a place for sure. It’s what 99% of investors will start out with. It’s a tried and tested way to build wealth. And a nice PPR Is a basic human need.

after a point your focus becomes on generating Cashflow and recycling equity faster. And you get tired of the headaches that come with resi - poor yield, constant repairs, land tax, non recovery of GST. Resi is all about growth and the quality resi investment properties with potential are the SAME ones that owner occupiers bid up to crazy levels (they borrow 1% cheaper, pay no land tax and can easily secure a 90% LVR). It’s false when the media blames investors - we can’t compete with a motivated OO.

In some ways, commercial RE is a far more level playing field. It’s purely about the numbers and the competition is entirely rational.

 

interesting thoughts guys.. what you mention here is exactly what michael yrdney advocates. build a portfolio of resi properties first then add on commercial to smash down the debts using the commercial rental income

however regarding your point on OO driving prices up vs rational investors in commercial - isn't that a good thing that resi has such a strong driver?

 

So I guess what you are saying Y-man is it depends on how much cash and your serviceability
If you can only access smaller deals in commercial maybe resi is better
If you can access bigger deals via an investment trust you lose control
However, if you have the capacity to access a more significant commercial deal on your own, that may provide better rental returns and CG vs a similar resi deal.

 

Is this in NZ?