Am I Missing Something?

Discussion in 'Commercial Property' started by gty12, 1st Aug, 2018.

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  1. Beano

    Beano Well-Known Member

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    Hilton Chicago - Wikipedia
    World largest hotel (stevens) US$30m to build ...a few years later sells for US$7m .
    Later drops to US$5m
    Recently US$150m spent on refurbishment.
    (I can see how the numbers get so high as my tenant spent $12m doing a refurb)
     
    Last edited: 28th Dec, 2019
    Piston_Broke likes this.
  2. RoadRunnerPerth

    RoadRunnerPerth Active Member

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    Location:
    Perth
    Residential and commercial investment are different, I think it’s misleading to try to make a direct comparison. In my view, apart from the usual expenses, keep in mind that with much residential, if you drop the rent you can usually find a tenant - same with selling, if you drop the price low enough, someone is more likely to buy a residential property.

    However, with commercial, many properties types and leases move with the economy... if things are going well, less issues finding a tenant. However, if things aren’t great, a commercial property can remain unleased for a long time (sometimes yers!), while the expenses keep on taking... especially if you had your previous tenant paying them and now that’s up to you. As previously mentioned, you need deeper pockets when untenanted, and if you have a mortgage, with those higher commercial rates... and your pool of potential buyers is much smaller if you get into trouble.

    Please note, I’m not against commercial investing, but I’m glad I had experience with residential property and shares before venturing into commercial - good luck! :)
     
    The Y-man and Beano like this.
  3. Beano

    Beano Well-Known Member

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    Location:
    Brisbane
    For the yield I believe generally the land cap rate is market set too high and buildings too low .
    Buildings due to maintenance and obsolescence with higher risk (vacancies)need to have a higher return.
    Land with zero maintenance and seldom being obsolescence while almost risk free (vacancies) should have a lower market yield
    The market of course sets the rate .
     

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