Suitable investment size for commercial investments

Discussion in 'Commercial Property' started by Jacko, 4th Jan, 2020.

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  1. Jacko

    Jacko Well-Known Member

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    Hi all,

    I've spoken to a few BAs recently on commercial property investment and their advice are all quite different in terms of investment size. Since these were high-level talks so they haven't been specific on the type of commercial to buy.

    First BA: Invest just over $1M and buy a multi-tenanted property
    Second BA: Invest just over $1M on a warehouse
    Third BA: Focus on $300-400k commercial investments

    Would be great to understand your views on this!

    Cheers
     
    Jacko, 4th Jan, 2020
    #1
  2. Trainee

    Trainee Well-Known Member

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    How is this any different from people who suggest property in cheaper suburbs v property in more expensive suburbs?
     
    Trainee, 4th Jan, 2020
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  3. The Y-man

    The Y-man Moderator Staff Member

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    Depends on the outcomes you are after.
    1. Mutli-tenant - more resilient to vacancies (i.e. you can stagger the lease)
    2. Warehouse - depends where.....
    3. Effectively multi-tenant across multi-prop - no huge outlay on any one prop so that having a loan called in will be less of an issue. Could have issues with getting long term tenants - I suspect CP in this range would be small shops etc?
    The Y-man
     
    The Y-man, 4th Jan, 2020
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  4. Jacko

    Jacko Well-Known Member

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    I just had the impression BAs would suggest getting something other than small shops. Not saying that's right or wrong but I just had that impression.
     
    Jacko, 4th Jan, 2020
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  5. Jacko

    Jacko Well-Known Member

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    Y-man, it sounded like both 1 & 3 would be small shops except 1 would be a group of small shops. In terms of the issue with securing long-term tenants, I'm guessing this would be equally applicable to 1?
     
    Jacko, 4th Jan, 2020
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  6. Jacko

    Jacko Well-Known Member

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    Also, between 1 & 3, which would be a more sound strategy? Multi-tenant single property vs Multi-tenant multi-property? Would 1 have any advantages over 3?

    Cheers
     
    Jacko, 4th Jan, 2020
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  7. Scott No Mates

    Scott No Mates Well-Known Member

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    @Jacko - There aren't going to be many sub-$1m CIPs which are multi tenanted (unless you find a gem in a small country town) - I'd agree that a multi-tenanted property would spread the risk on the asset. You would need to undertake thorough due diligence on each of the existing leases - 3 leases expiring on 20 November ain't going to be pretty.

    Single industrial asset - can be a good starter property if well located/designed/appropriately sized etc. Look at the comments below but replace "office with "unit". Small units are entry level but in plentiful supply (may or may not be easy to lease), larger freestanding/strata factory less common but dependent upon larger businesses.

    Smaller commercial property - just like an @rsehole, everyone's got one. They are a dime a dozen in many locations eg. a 50 m2 office in a 6 storey CBD building - all too many similar properties, unless you can find an office in a small suburban block where there is sufficient demand, little or no new supply, low vacancies etc. Sometimes you can find a landmark building with office suites
     
    Last edited: 4th Jan, 2020
    Scott No Mates, 4th Jan, 2020
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  8. The Y-man

    The Y-man Moderator Staff Member

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    There's really nothing much other than small shops or sheds in that price range (or a small office in a building as per @Scott No Mates above)

    See for yourself:
    Commercial Real Estate & Property For Sale in Australia

    The Y-man
     
    The Y-man, 4th Jan, 2020
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  9. The Y-man

    The Y-man Moderator Staff Member

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    @peastman can tell you about option 2.

    The Y-man
     
    The Y-man, 4th Jan, 2020
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  10. Jacko

    Jacko Well-Known Member

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    @peastman Would love to get your insights on warehouses if you don't mind!
     
    Jacko, 5th Jan, 2020
    #10
  11. MTR

    MTR Well-Known Member

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    Who is your ba
     
    MTR, 5th Jan, 2020
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  12. MTR

    MTR Well-Known Member

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    MTR, 5th Jan, 2020
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  13. Jacko

    Jacko Well-Known Member

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    I talked to the Right Property Group and Rethink
     
    Jacko, 5th Jan, 2020
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  14. The Y-man

    The Y-man Moderator Staff Member

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    They give the lease expiry when you click on the prop.

    I have to say, anything under the $1m looks challenging ~ even if the tenant has signed a 10 year lease, if they go bust, you pretty much have no recourse.

    The Y-man
     
    The Y-man, 5th Jan, 2020
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  15. ToBeFree25

    ToBeFree25 Active Member

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    i am in the same position..

    which one is the best ? what is the future hold ?
     
    ToBeFree25, 5th Jan, 2020
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  16. The Y-man

    The Y-man Moderator Staff Member

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    Let's go back one step - back to the "desired outcome" - what are you trying to achieve? Is it a practice run to buy 50 more of these? Is it to make CG when you sell? Is it to make money from rent?

    The Y-man
     
    The Y-man, 5th Jan, 2020
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  17. ToBeFree25

    ToBeFree25 Active Member

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    thx y-man.

    i want to have the cake and the eat the cream too...

    too greddy ?


     
    ToBeFree25, 5th Jan, 2020
    #17
  18. The Y-man

    The Y-man Moderator Staff Member

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    I asked those because in my head (simple brain):

    1. Practice run for bigger/better/more - great idea to start small! Because chances are you may even lose money in the long run but learn a great deal about!

    2. CG - would be closer to a inner-melb resi purchase - buy something where there is scarcity of land - eg inner city melb - the rent will be a bonus, but you might still be negative cashflow until you "cash out" and sell the prop (in fact these would be the converted terrace types you'll find in Richmond, Collingwood, Fitroy etc)

    3. Make money from rent - I'd ditch the whole idea and go buy shares in a larger project with $20m~$100m properties

    In all cases, assume you will need cash and that you can't get a loan (even if you did get a loan, don't do it unless you can pay it off in full with 30 days notice)

    The Y-man
     
    The Y-man, 5th Jan, 2020
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  19. kmrr

    kmrr Well-Known Member

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    I am interested in why you suggest (point 3) buying shares in lieu of a commercial property/rent return?

    Re OP: I just bought a Warehouse, my first CIP, for appx 900k yielding just above 6% in Melbournes South East. Appx 600sqm
     
    kmrr, 6th Jan, 2020
    #19
  20. The Y-man

    The Y-man Moderator Staff Member

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    For my risk profile, I'd rather have my money spread across multiple properties than "everything in one basket"

    So I'd rather have a "shares" (or more technically "units") in a trust that owns say 60 large properties of $20~$100+ million each with potentially multiple tenants in each of them.

    I currently get over 6% yield net of all expenses for one of my listed A-REITs with over $26 billion in property assets.

    The Y-man
     
    The Y-man, 6th Jan, 2020
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