Why Commercial ?

1015 Ayresford Road, Taroon Via, Warrnambool, VIC, 3280 - For Sale

This place near me that has just come on the market would have been sold 4-5 years ago for 2.6-3M and now for sale at 5,850,000. It's probably good value in real terms and there is comparable sales to justify. My estimation of business revenue would be 3.3-3.5M,

Sales of cropping land in the Western District have gone from about 1500-8000/acre in just the last two years, so a much greater growth in comparison!

 

oh sorry cbd has flown in 4-5 years. Easily doubled

What I meant was no growth last 12 months

 

Cap rates may be 7% on strata units, regionals, office maybe?. I certainly don’t see much selling at that price for traditional land rich commercial.

- childcare yields in the low5%
- our industrial cold storage for revalued @ 6.5%
- retail / office in good spots still mid6%
- We have a dental clinic on a 10*10 on a 607m block opposite Woolworths - likely getting 4% now

if you can dabble in anything with development/rezoning upside, in an area with residential capital growth, that the market perceives to be under rented - anything with long term uplift - you are starting to get 5-6%

 

My Cropping land was worth $600 an acre 5 years ago , probably worth $1200 now. Last year had about $ 400/acre dollars business revenue. A wave from south pushed cheaper Northern prices higher and removed supply until the south became comparitively very cheap and the North expensive, so buyers have went back South.

 

Not yet, I think it's a challenge for each generation that comes.

 

That is good growth but not great in comparison to what some areas have seen. What area is this?

 

Am interested in looking at commercial but there's something that's holding me back. I think of CIP a bit like bonds, i.e. valued as cashflows discounted by rates (much more-so than resi). I would not be buying up bonds right now...rates have bottomed. This is not a short-term, 'timing' call. CIP will no longer be swimming with the rates tide, for maybe 20 years.

I don't actually own any CIP. What do you think? Other offsetting factors going forward that make it more attractive than resi or shares?

 

Residential

• Rents dropping
• House prices increasing
• Yields reducing
• Tenancy law heavily weighted to occupiers & regulated
• Bond is 4 weeks
• Difficult to get a bad tenant to vacate
• Leases are short 6-12 months
• Etc

Commercial

• Contract law applies
• Bond 3+ months and personal guarantees
• Rents paid monthly in advance
• Fixed, cpi or market rent reviews depending upon the lease - no additional notice applies
• Level playing field
• Long leases 3+ years

Australia is bubbling along, business confidence is still strong - there should be few reasons not to consider.

 

Property is long term investment
If you can have patience the returns are great .
The property I currently own was purchased at $280k (1981) then $900k (1993) . Today the return is Net rental (after all costs except funding and taxation) $1.025m.
So if the person had held he would now be returning his initial investment almost every three months ...that's why I like commercial

 

The Vic Central Mallee, It is 15% p/a for he last 5 years with 5% net yeilds =20% p/a return. Over 20 years the CG has been 9% p/a, the average CG for farm land is 7.5% p/a. There was another sale near me of similiar country and rainfall for $1600 p/acre a month ago making it more like 160% CG in 5 years.

 

Commercial real estate can be very volatile.
I have seen many halve, double or any combination many times over a few decades.
Same with rents.
Hasn't happened for a while, so the next time may be sooner rather than later.

Contigency funds are a must.

 

I imagine you are grateful for putting that deal together all those years ago? No one much seems interested in talking about investments in farmland on this forum and that goes to the wider investment community as well. I'm not sure why. Many foreign interests are certainly interested. No doubt about it. It was last weeks or the week before there were some very interesting articles in the Weekly Times about who really owns Australia.

There has been very good growth but in many ways agriculture is still good value when you compare to elsewhere like Europe and North America. A good place to hold wealth IMO.

 

Yes, watched TV the other day and a nice lady said she compared, stocks, residential property, commercial property, bonds and farmland. She said farmland stacked up the best. I don't know anything about farmland tbh

 

This is a good point. Which is why commercial is a long term investment just like bonds.... price fluctuations should I be irrelevant as long as you have regular income and can maintain your servicing and equity metrocs

 

Is it just me or that every commercial vs residential comparison I've come across almost always the resi comes up trumps. However, that was back then and I believe each asset basket is maybe useful in some situations for someone.

Capital growth in resi simply outstripped commercial in most cases I've come across but I guess that would never really repeat itself.

 

Yes that is true just about every past residential property has out stripped commercial.
I have worked with compound interest a little old residential 100m2 house on a 400m2 section will one day be worth more the biggest Westfield shopping centre in the wild world.

 

Uhm... not in my world. Only recently I know an offer of 60m was refused for a building that cost about 20m lest than 10yr ago.
Then there was an office/retail near a station that was purchased at 14% yield, added a gov tenenant and is now at 7 or 8% valuation after a few yrs.
Then another suburb cbd location sold for for about 1.5m about 10 yrs ago and now has a 60 unit building.
The old RSL club that had no buyers at 2.5m is now office mostly gov and resi units.
Also there's the building that cost about 15m and has been for sale for about 15 yrs and no one seems interested.
And the CIP ex car yard that was bought for 700k and sold 15yrs later for 7m.
I could go on and on....

 

I guess one of the thing with farmland is that one needs to know about the business activity of it compared to resi or offices/retail.
Everyone understands how resi works, offices and retail spaces or warehousing are also easier to grasp. But with farmland I suppose you need to know about the type of soil, rainfall, and a bunch of other factors I have no clue about. The idea sounds appealing but personally I wouldn’t know where to start!

 

That's another totally specialist area and subject entirely to the extent of productive land/production capacity that may be generated from the property.

 

Is it common with that CIP investors re-finance against the massive value growth for cash out
and invest more to grow portfolio, like many resi investors do?
Is cash out much more difficult with CIP in general?