Commercial Rentvesting

Discussion in 'Property Experts' started by 33053, 29th Nov, 2021.

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  1. 33053

    33053 Member

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    Hi there,

    I've started working in Commercial Property about a year ago as an agent and have a pretty good handle on the market, what's over-priced, under-rented etc. I've started reading about rentvesting as an investment strategy in resi - but what about if the investment property is commercial? Of course would need more capital to sustain vacant periods, however as I understand the commercial market better I may be able to capitalise on better chances.

    Thoughts?
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    It takes many forms in commercial.

    • SMSF - leased to members' business
    • Owner occupied but owned in a different entity/related party
    • Leased to a 3rd party & rent something more suitable for their own business
     
  3. 33053

    33053 Member

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    Sorry I mean more in regards to commercial as your first property rather than resi? Obviously more risk involved because of vacancy periods?
     
  4. Brendan Colley

    Brendan Colley Member

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    I purchased my first commercial property around 4 months ago. Lenders won't give you the same amount of leverage compared to resi property. I got my loan at 80% LVR but the rates are cheaper if the LVR is generally 70% or less. The demand for industrial and essential retail quite high currently with no sign of abating. Changes to working patterns such as working from home creating a risk for office buildings particularly in CBD locations.

    If you can generate the cash required for a deposit $150-$300k I think it's a good idea. My wife and I rentvest like what you have described.
     
    Terry_w likes this.
  5. Cousinit

    Cousinit Well-Known Member

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    I’ve seen this also work well in farm business as well.

    Share-farm 50/50 on one farm and buy another. It seems to be happening more.
     
  6. Ruby Tuesday

    Ruby Tuesday Well-Known Member

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    Never heard of 50%, does that include 50% costs too? Cant get anybody keen at 25% now, 30 years ago that was enough cash to pay 50% deposit for another farm in a good season and the rate already decreased from the 30% previously But as cost increase and margins per unit of production decrease the units available to sell have needed to be increased . What I have seen every leasee will only offer fixed $$$ with annual increases. I think the bank prefers to see leases with $$$ too, paid in advance as that is part of the reason the leasee doesnt buy because it is more difficult to get finance when exposed to production risk.
     
  7. Cousinit

    Cousinit Well-Known Member

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    Sharefarming is very common in dairy. A 50/50 share farm agreement would typically involve the sharefarmer supplying all the livestock as well as all mobile plant and machinery. I know it well as that’s how I got my own start.

    Costs are shared too and a typical agreement would be for 3-5 years. This is more like a business partnership than a lease. Typically, it is more lucrative for the land owner than leasing but it does involve being directly involved with the business day to day running.

    Many sharefarmers I know would have 2-3 million of collateral in their production animals and a substantial amount of equipment. It’s a very underrated business opportunity IMO.

    Having said that, I have my main property leased

    One thing I did learn last year when I had a valuation done is the valuation was slightly lower than otherwise because most potential buyers want to run it themselves. It wasn’t significant but I hadn’t considered that. It’s like owning a vacant industrial shed and it being valued more vacant than if there was a 3x3 lease on good terms!
     
  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The concept to the term "rentvesting" is where a person acquires a property and commences to reside there but they depart to use the CGT main residence absence rule to be absent for up to 6 years on each occassion while enjoying potential CGT free time.. This rentvesting strategy relies upon the property being residential.
     

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