Investment V/S PPOR

Discussion in 'Investment Strategy' started by James21, 2nd Apr, 2021.

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  1. The Y-man

    The Y-man Moderator Staff Member

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    Just as with buying any property, there can be liquidity issues - i.e. you may not get your money out when you most need it (just like in resi prop - you need to sell the house right?)

    Listed prop trusts get around this by allowing the ownership of units (they pretty much look like "shares") to be traded on the ASX. The downside is that compliance etc means the management overheads are more costly.

    Also, as you are (most likely) a (very) minority holder, you will not have much say in which property gets sold, and which properties get bought. To me though, I have a "leave it to the experts - I hope they know what they are doing" attitude.

    The Y-man
     
    The Y-man, 2nd Apr, 2021
    #21
  2. No_Limits

    No_Limits Well-Known Member

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    The main thing is, buy something. Something is invariably better than nothing.

    People on lower incomes sometimes buy a (higher yielding) IP first because of the servicing - the rental income will help you buy this one and more importantly, the next one.

    People on higher incomes might just buy PPOR first, say in a high growth/low yield area. They'll draw the equity in this property to buy their first IP, relying on their income to cover both mortgages.

    If you can get the incentives on PPOR and later convert it to an IP, sure.
     
    No_Limits, 2nd Apr, 2021
    #22
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  3. James21

    James21 Active Member

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    Seems to be a good option to diversify, though the fees (ASX broker + trust) might be an issue but certainly worth exploring more.
     
    James21, 2nd Apr, 2021
    #23
  4. Trainee

    Trainee Well-Known Member

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    it'll still be less than stamp duty and property manager fees.

    But... think about leverage.
     
    Trainee, 2nd Apr, 2021
    #24
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  5. The Y-man

    The Y-man Moderator Staff Member

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    as per @Trainee remember that resi prop carries:

    • stamp duty per transaction (7%+) compared to asx brokerage (as low as 0.012%)
    • resi prop management ~7% + rates + land tax + water (supply) whereas in comm prop, tenant pays
    Leverage is obtained by the manager - this is both good and bad (as with resi prop - but more pronounced risk with comm prop). This is where you go with a big manager who can negotiate rates and terms. Comm prop turst are typically geared at 30% to as high as 60% depending on the strength of tenants.

    Other things:
    • resi prop tenants - lots of rights protected by government
    • comm prop tenant - purely determined by lease contract, no laws
    • resi prop - usueally max 12 months lease
    • comm prop - typically 5 years lease with annual rent increases
    On the other hand, trust lack control and visibility (where did those fees go....). Here's a direct ownership view: Why Commercial ?

    The Y-man
     
    The Y-man, 2nd Apr, 2021
    #25
  6. James21

    James21 Active Member

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    Never thought of commercial property investment till date, you guys are masters of the art of property investments.
    There's a lot to learn, Im thinking will start with IP to begin with and get some understanding of the commercial market before jumping in.
     
    James21, 2nd Apr, 2021
    #26
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