Why Commercial ?

Yeh, 14 years ago when wheat was $350-400 a tonne and land was $350 an acre no-one wanted to buy it, except foreigners, Now price of wheat is a little lower but land prices are 300% higher ! All the talk was about climate change, rainfall ceasing, rivers not flowing, ghost towns. 7.30 report actually said this! but it was pretty much a no brainer for any rational person. If all this happened the food shortages was the bit people missed. On traditional metrics should have been $800 plus an acre. Gold was the go, but you cant eat gold, gold has risen about 80%, you would have got more than that in yield with farm land, not have to sell to get it, and had 300% CG. and leveraged maybe half as much again, Farm land is not a yield play any-more now though, buyers are buying for land banking a perceived safe place to store wealth, or for to use equity for expansion of operations as price increases and scale means low equity is not an issue,

 

I really don't see how it is much different to investing in Industrial real estate generally.

 

You have 2 categories of improvements on rural land:

• improvements on the land (operational eg buildings)
  
• improvements to the land (dams, irrigation, top dressing, weed control etc)

Industrial land you can only improve by improvements on the land eg hardstand, shedding, comms and the like.

Drainage is part of the building to prevent flooding.

The only similarity is productive output.

 

I would disagree. Commercial is where the big bucks are made: it is truly the peak of the triangle. You need existing equity, knowledge on leasing & real estate law, and the barriers to entry are very high for the quality assets ie. pay a very high price for passive stock and compete with REITS/syndicates or have piles of cash/equity available for assets that are vacant/value add

you would need an LVR under 40-50% to be comfortable due to the valuation reversion risk from vacancies, a good trading business for cashflow & plenty of dry powder.

 

Not sure how common it may be, but yes just not as easy as resi.
Lots of negotiation is generally needed and it also depends on the value or price.
Specialist bankers won't deal with anything under 5m, so under that threshold can be harder than over.

 

again I’m sorry but not sure I agree. CashOut against CIP far easier as long as there is purpose of funds (usually another acquisition). The asset is already Positive yielding and funds are being obtained to purchase an additional income producing CIP. A big part of CIP is also offering leasing incentives and refi is the mechanism to recycle equity back to an owner.

resi much harder in my experience as banks work on a circa 6% p&i metric and as an asset grows in value - the net yield actually drops rather than increases.

Commercial LVRs might drop back from 65 to 55/60 if an individual bank is starting to take on a big position - but that’s par for the course as your asset base grows, your lvr should drop.

 

Which lenders are among the most cash-out friendly for CIP for the following:
- lease doc ok
- servicing & interest cover ratio
- LVR
- flexibility of intended use of cash out
- rates
- fees

THanks!!!

 

Borrowing for residential with the same LVRs is as CIP is almost endless.
I know because I've always been "asset rich cash poor" and never had a high income.
Needed a 400k investment loan a few years ago on a 1m unencumbered RIP and got it easily, low doc no broker. They did value at 800k though I didn't care too much.

 

very useful to know, do you apply this thought process to other commercial property classes, such as industrial?

the dream would be to get a parcel in a desirable part of town and do a land lease where the tenant can build whatever they want, haha.

i only want to pay for the appreciating components of property wherever possible, not the depreciating components

 

i think any time a tenant does a fitout they will be more committed to staying the long term. if they've spent money they're far less likely to just walk away and the more they spend the longer they'll probably stay.

 

Yes same thought for all Properties.
I had a conversation with one tenant ...I said you must have spent $500 m2 ($250k) he said "and the rest" ..he spent $500k ..all depreciating assets.
The largest amount a tenant has spent is $8k m2 so $40m

 

incredible cost .. it only costs about $2k-$3k per m2 to build a multi level apartment building, or about $800-$1400 pm2 to construct a warehouse, really puts it into perspective

 

What sort of improvements are these?
I have a property where the tenants have made substantial improvements to the place with no intention of taking them with them and really added a lot of value. I can't think of a single time I have seen that happen with a residential tenant. Not that I would want it either. Of course there is the make good clause etc etc but If they want to spend 150k to pour a new concrete floor in your shed at their own cost then what do you say?

 

$2.4k m2 to refurbish a hotel

 

$5.6k m2 building incl goodwill (I am just guessing based on the companies annual report and google news)

 

Not residential for this one ... commercial.
For my Residential the tenant (leaseholder) about $4k to $5k m2

 

Yeah I got that.
My point was that it seems rather more common to me that business people who lease your commercial property are a lot more likely to add some value??

 

It's more "flesh in the game" ... mostly there is no value to me .

 

what is everyone being quoted/paying for their management fees? i've been offered 4.5% for 1 property, 3.5% for 2 and 3% for 3. this appears pretty sharp to me however i am not sure what the benchmark is.

 

This property would fit the bill!
Bunnings store
The land is owned by an investor
22-54 Kingsford Smith Street, Rongotai, Wellington New Zealand 6022

The tenant owns the Bunnings store