Going from housing to commercial property investment, how much capital is needed?

Hello fellow investors, i hear alot of mixed information about commercial real estate but would like to see what everyones thoughts on here in regards to moving your portfolio to commercial real estate.

im 28 years old & have a duplex rental property that i could pull 4/600k out of as its done great on the sunshinecoast.

Im interested in commercial real estate and wether its a good idea to get into it now or wait a bit longer & raise more capital, or ofcourse partner up with someone to share the load of the costs for purchasing commercial real estate.

i would like to know whats a reccomend capital for getting in to it as most commercial properties i see start at around the 2-3 million mark and above and this is for shops/garages and even seen some motel/hotels & storage facilitys in that too.

i want to eventually get into it i reckon theres going to be some great potential for commercial property in the future and property in general after covid and everything thats going on, commercial property can give much more rental income and equity gains compared to housing so is definitely what i want to eventually do.

I kow alot of purchasers are OPM companys, and large corporations/ trusts ect that purchase these (from what im aware of) but i want to get into this either all by myself or with business partners.

any advice would be great!
thanks all!

-jai

 

I have looked at commercials for years but never bought. Mistake because I’ve seen some fantastic capital growth even at the lower end (small factory units 75 sqm to 180 sqm).

Yeah you need a bigger deposit or substantial equity. I think 30% deposit min.

I found that the agents charge more to manage.

I also found that to make big money (rent wise) you need to spend big, say $2 million. I haven’t reached that stage and I don’t like partnerships. Maybe in a few years I could snag a commercial.

 

In most cases you would expect a 30-40% deposit for commercial asset, it also depends on whether its a leased investment or vacant property.

There are diff asset class and each has different lending terms, Retail/Industrial/Hospitality/Capital market etc

There are more and more entry level commercial investment these days from small office to showroom/warehouses, it really depends on your long term plan and risk tolerance.

 

Yeah i see mate what sort of returns roughly have you seen? Its a 30-50% deposit to secure one i spoke to a commercial broker recently and it depends what type of commercial property it is, well good luck in securing one mate you hear of the stories of big investors
Making 2-5million on big property deals and 50 million on the largest commercial properties so commercial property is deffinitly the way in property investment but its a big investment & alot of risk.

i want to get into it one day though

 

I just had a look on commercial realestate at St Marys, Wetherill Park and Ingleburn (these are Sydney Industrial suburbs) and it looks like about a 5% return on your investment.

But all outgoings are paid by the tenant. Obviously better return if you can squeeze sales price down.

So a $2m property could pull in $100K in rent. That’s not bad. If you own it outright you can retire.

 

That’s good. But I think you’d get a better return if you own the CIP outright and it doubles in value (which it looks like it has in Sydney over the last say 5 years).

 

Awesome to think isnt it owning just 1 commercial property can do that, plus the possibility of the huge equity returns you can get whilst you retire

 

Sorry mate what does cpt and reit mean

 

How long between tenants and how difficult is it to find new tenants are the questions and issues I would be worried about.

During Covid or during hard economic times not many ppl are looking at renting commercial or starting commercial ventures.

I've heard some absolute horror stories about having no rental for 12+ months - the longest I heard was close to 18 months. Can you handle that and still pay the mortgage if that came true?

With residential even having a massive portfolio (i.e) 20+ houses I've always had rent - the longest ever was like 7 weeks during peak of Covid lockdowns and no inspections allowed etc.....

 

You can build up mega equity but, lol, there’s always the but, if you lose your tenant and can’t find another quickly, then it may hurt (depending on your financial position).

 

Awesome return. Of course there’s tax on that.

My thinking is, for example, buy an industrial unit for $2m. Then say five years down the track it doubles in value to $4m.

All of sudden there’s $2m in equity to use tax free. Correct me if I’m wrong but you can’t do that with a CPT.

 

Im guessing cpt means houses?
Yes this is why i love the idea of commercial property the returns cannot be comparable to houses 2-5 million in equity are achievable in entry level commercial property (2-5million mark) it would take you what 10 houses in your portfolio to achieve this, with the right due diligence surely you could purchase a commercial property with around a million in capital and make a great deal with it, maybe renovate a commercial property, in a high capital booming town, for the right price, having everything in place and of course spending a long time setting this up, with 1 deal that could be a few million in returns if done right

 

I see thanks

 

CPT are commercial property trusts. From my understanding with a CTP you buy units in a trust that owns say a shopping centre. So you own a portion of the shopping centre. You are entitled to a portion of the profit and of the capital gain when you sell your units. I’m not an expert on this so get professional advice if you decide to invest in CPT.

Yeah, investing in commercial can make very good money.

 

For commercial you are going to need a larger deposit as pretty well all commercial brokers will only be able to get you a 75% LVR loan. You might want to double check those leases for the ones you looked at in St Marys as 5% sounds high for Sydney, even St Marys unless it's a risky tenant. The % is always referred to net returns (excluding outgoings) yet some leases may be gross.

I bought a 6.5% property in Perth in December and are struggling to find any yields even close to that at the moment.

The lower end of the market is very tight and short supply at the moment with many people like yourself wanting to move over for the better returns. I'm currently looking for a place around the 1.5M range and there is nothing decent anywhere

 

Over the last 20 odd years, we've only experienced short vacancies between tenants purely due to a good economy, good maintenance, presentation & excellent management/leasing agent.

You need to invest in your investment, not just take the rent.

I've weathered a few slow times prior to the current state - usual gap had been 2-6 months, worst 18 months vacant. Having a great letting agent makes all the difference.

It's not just the initial vacancies that you have to cover & survive - you then have 10-15% agent's letting fee, possibly lessor legals (where not permitted to be charged to the tenant), fitout period, rent free period & fitout contributions. Clever structuring can reduce the impact of the incentives.

 

Agents generally charge the tenant in commercial for management