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What can u buy for 1 million in commercial and for what returns or secure income

Discussion in 'Commercial Property' started by justine77, 23rd Sep, 2015.

  1. justine77

    justine77 Well-Known Member

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    What commercial secure income investment can you buy for $ 1 million please ?

    Commercial property is known to have more risks so i guess i'm looking for one that will stand the test of time and be low risk.

    When i once spoke to a comericial property broker he was talking about properties in certain locations that have stood the test of time
    or that are in certain corridors opening up that i guess they believe will also stand the test of time
    and i guess the type that will stand the test of time and be financially most rewarding.
     
    Last edited: 24th Sep, 2015
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    Real commercial is your friend.

    Do some research.
     
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  3. DanW

    DanW Well-Known Member

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    I'll sell you the car space on my apartment for $1million. that's commercial and secure :)

    In all seriousness, I think you need to give a bit more information :)
     
  4. The Y-man

    The Y-man Moderator Staff Member

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    Depends on the "secure". If you mean a long lease with tenants that are unlikely to go bust soon, government tenants are probably best.

    For a million, you might consider going into a property trust into a building that is leased to government and/or very large corporate(s).

    Returns are dependent on liquidity - some very illiquid trusts (similar to buying a property yourself) return about 8~9%pa paid monthly or quarterly.

    The Y-man
     
  5. justine77

    justine77 Well-Known Member

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    Thank you Y man . How do i find out about property trusts please and what are the benefits and disadvantages of these. I guess for 1 million a benefit might be that i can buy into larger properties that i wouldnt afford otherwise?

    I can look on real commercial as was suggested , however i really have no experience and i dont know what to look for or what would be long term successful and bring a much better and secure income than residential . I still see residential as secure but commercial is meant ot be double as high because of having less expenses and more risk. I dont like the risk i'd like low risk and as secure as possible. Any ideas please?
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    I invest into unlisted commercial property trusts for several reasons:
    - desire for relatively stable income
    - often better yield than listed REIT (real estate investment trusts) and stapled shares
    - money is going direct to the properties (as opposed to stapled REIT's in which you buy a share of the company as well)
    - I can go an look at the properties if I wanted to / am familiar with the area etc
    - I can understand the tenants requirements
    - can buy into a $120 million building project with $10,000 (so I can split $1 million across several trusts)

    The downsides are:
    - Lack of liquidity - your capital may be locked up until you can find someone to transfer your units to, or until the majority of unit holders decide to sell the property and wind up the trust (or goes bust)
    - Lack of direct control and added overheads - you are leaving the negotiation of the lease, finding tenants, etc etc to the appointed trustee company.

    Depending on the fund, they may have some (limited) liquidity - usually these will have a lower return

    My suggestion is to really understand the properties the trust is investing into.




    The Y-man
     
  7. DanW

    DanW Well-Known Member

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    Hi Y-man, have you invested in trusts run by Sentinel before?

    That was another one I was considering, the reason I ask is their distributions are usually 10-15% per annum.
    http://www.sentinelpg.com.au

    Curious to hear your views. I am moving my smsf into trusts
     
  8. The Y-man

    The Y-man Moderator Staff Member

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    @DanW

    No - I had a quick look, but personally don't like the home maker centres (seen too many vacancies), and regional ones at that.

    The regional shopping centres are probably ok if anchoered by woolies or coles BUT for me, I like to see the centre(s) in action - and all these are too far for me. So I tend to invest in the shopping centres I go to and know the foot traffic and tenant turnover.


    The Y-man
     
  9. Beelzebub

    Beelzebub Well-Known Member

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    Is there scope for leverage with these trusts?
     
  10. The Y-man

    The Y-man Moderator Staff Member

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    Yeah - you get the money from your residential real estate draw down @5%pa , earn 7%pa, and keep the 2% arbitrage ;)

    In any case you remind me of a really good point. The other BIG RISK with these trust is their leveraging (and what brought many to their knees in the GFC) - these trusts usually HAVE borrowed money - so make sure they have adequate interest cover (esp if interest rates go up).

    The Y-man
     
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  11. Beelzebub

    Beelzebub Well-Known Member

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    Yeh, just Googled them. Have a slightly better understanding now.
     
  12. roberto

    roberto Member

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    Is there a website with a list of all/most of Unlisted Property Trusts?
     
  13. blw101

    blw101 Member

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    Quite a few here, but this is a list of new vehicle launches in the past few years: https://www.pir.com.au/unlisted

    Major players in the market are Charter Hall, Cromwell, Sentinel, Australian Unity, AMP Capital, Centuria, Abacus, Corval...

    Check out their websites, they should have PDS's for their unlisted trusts that are open for investment.

    blw
     
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  14. DanW

    DanW Well-Known Member

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    Yeah they are internally leveraged. Sentinel typically over 60% which is part of the reason for higher returns.

    Other less risky trusts are 20-50%

    You can't borrow against them externally. But it can be possible to use the income in servicability calculations. I was considering buying some to get around APRA servicing, but using equity to buy them pushes me back down the ladder anyway...
     
  15. roberto

    roberto Member

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    Thank you
     
  16. Speede

    Speede Well-Known Member

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    It seems Sentinel is fully subscribed? Just did an equity release of $1.3m and would like to buy in...
     
  17. DanW

    DanW Well-Known Member

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    No it's not a single investment on offer. They start a new trust for every property that will be purchased.

    You have to let them know you're interested, and then wait until another good acquisition comes up and they open the next trust.
    Then you get notified that they are making a purchase and opening a new trust. I think they do a few per year.
    I'm hoping to buy into the next one with my SMSF, whenever that comes.

    But I wouldn't dump all the money in 1! Why not put some into their next one, then also diversify into the trusts that the Y-Man mentioned, and also into other assets so as to not risk a big lump on one? Since it's only $100k minimum, you could diversify across many investments with that equity.

    Just sounds like you're rushing into this! Think about your asset distribution, especially if this is money you don't want to lose.
    Consider other asset classes as well.
     
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  18. Beelzebub

    Beelzebub Well-Known Member

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    Sorry if this is a silly question, just trying to get my head around how these things work. So if the trusts are internally leveraged does that mean my $100k contribution would hold or represent a value of $200k worth of assets within the trust (assuming they are leveraged at 50%)?
     
  19. DanW

    DanW Well-Known Member

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    Yes, for example this property to buy is $27million: http://www.sentinelpg.com.au/portfolio-view/sentinel-homemaker-trust-geraldton-81

    But they might only raise $12million from investors.
    So a 55% LVR loan might be taken out, but they would keep some cash spare of course.

    Then also they try to find ways to increase the yield, so they may spend some money there as well.

    For listed A-REITs - you can see their debt level and net tangible asset backing in the share market data tables, and in their annual reports.

    The risk is that usually this debt is short term, secured only by the lease and that they have to refinance every few years.
    During the GFC - Bank says NO. Can't refinance, and properties have to sell.. lots of property trusts lost money..
    But a GFC doesn't happen all the time, but still it's good to diversify.
     
  20. Speede

    Speede Well-Known Member

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    So if you invest the minimum $100,000 you get 9.5% return on $200,000 paid monthly?

    How does one cash out if you want to exit?