Why Commercial ?

I have seen this done a few times.

If you go commercial do not max yourself out. You need extra capacity for when the market turns and the place is empty for 3 years.

Of course if you lease your own building you are taking away that risk. A lot of our clients do this to good effect.

 

Or use a lender that doesn't have annual reviews, as mentioned earlier.

 

Yeah - but for how long? I have seen the "no reviews for 5 years" become annual after 5 years.

The bank gives you an umbrella when it is sunny.

 

That's just looking at one side of the equation, the other side is where cap rates are at for the particular asset.
Your torrens title building on high street might have a cap rate of 3.5% applied where your strata titled CBD office with a 5 year lease may be at 4.8% and the strata office out of the city with a 1 year lease may be at 6%. 3 years ago these cap rates were much higher.

 

Hi @Beano, very interesting thread thanks for sharing!

I am very interested in commercial however based on my finances I can probably only purchase something sub $400K. I currently I'm looking at mainly strata as that's what I can afford.

I prefer something in a capital city or major regional centre (eg Gold Coast/Sunshine Coast / Newcastle)

What's the longest vacancy period you've had to encounter?

 

About 2yrs

 

@Beano have you considered investing in UK? Especially now that pound is weaker. You mentioned in one of your posts on another thread that your NZ properties are bringing in 20% more because of FX fluctuations.

EDIT: also, have you ever purchased sight unseen? or you used your international purchases travel as a holiday ;-)

 

Not looked at the UK as i thought the market was over priced
Does viewing with Google count?
I have purchased about 30 properties using google . Not necessary to go inside as only buying the land

 

Do you build on the land you buy or you buy already built sites?

 

Already built on

 

I tried to read the posts by you but couldn't find one that says how you started in CIP and your first few deals.... Care to share?

 

First commercial property was not a good buy...it was leasehold ..was hypnotised by the 18pc net yield (got murdered on the rent review) ...but luckily the lessor sold the land to me ...or it would have been a massive loss...since then i focus on buying land only ...the land appreciates and building depreciates
Many tenants have been in the normal property for over 25yrs!
The leasehold tenants however should stay for 100 plus years perhaps may still be there in a thousand years with no vacancies or decrease in rental (sort of ..as they will sell their interest to someone else)

 

I am always learning so much from you!!

Quick question in regards to stable long term tenants, 1. what kind of businesses consistently fit that criteria and 2. whereabouts are you able to buy them with the 6.3pc net yield? Most I have seen around Aus are very competitive and there are people buying some commercials with 4.5% gross yield!!

I am sure there is good opportunity overseas but I am so confused as to why it is the way it is..

Also at what price bracket would you say commercial is best played, eg: <1m, 1-3m, 3-6m, 6-12m, etc..

I have heard the best times to play commercial are when you have a nice fat cash deposit ready to go and the seller is either desperate or very motivated to sell (e.g. Untenanted)

 

Yes very true .....the 4343 Great North Rd Glendene Auckland 10.5pc net yield apparently (my mate who brought it told me said it failed to sell at auction )..reserve $1.3m sold post auction for $900k net rental $90.5k
I would say at all levels commercial is worth buying at ...just look and look ..maybe go half with a mate
1: best to buy where the tenant has committed a large amount of money to the tenancy ....from small one man take a ways ..probably $100k kitchen fitout to Rydges hotel $28m outlay
2:The 6.3pc net yield i do admit is very low when i could be buying 10pc net yields but I justify this in the virtually risk free and management free aspect of the property.
You can't get the harbour views and CBD location for 10pc net yield

 

Good thread thanks for sharing

 

@Beano and @MTR thanks for sharing your stories! Truly inspiring.
Beano have you considered US market? I know MTR is already there.

MTR are you only doing residential there or you are in CIP?

 

No I use to work for a US company and the tax returns would give me nightmares ....but I do like holidaying there ...like to visit all 50 states in the USA (or 51 if you include Washington DC)

 

Thanks for sharing @Beano

For interest, what is the length of the leasehold in general you look for? Do the banks fund these as for normal CIP purchases, say 70%?

In the UK we purchase 90+ year leasehold flats as the value is very similar to the freehold at this length. This is for residential. There the leaseholder has a legal right to renew the lease for 90 years, so when the lease gets into the 80s, we start negotiations with freeholder, there is a bit of argy bargy and valuers are involved if needed. It can go to arbitration but generally a renewal premium is agreed. The leaseholder has to pay a ground rent to the freeholder every year, often this is just a peppercorn amount like GBP1. When we looked at it years back the returns were around 10% on higher ground rentals but one could not get finance on the purchase. The banks there fund the leasehold purchase just like a normal residential mortgage as leasehold is very common. I am not sure how it works on commercial.

I am assuming you are buying the freehold and the right to the ground rent effectively.

 

Whatever we can source.
We have purchased 1 commercial property which was posted, anything that makes sense. Just purchased another property yesterday.

Fierce competition.

 

Yes that is correct
The return is generally based on a percentage of the value of the land eg 5pc
So the numbers are not peppercorn
My leases are in perpetuity but some i know are terminating
Yes the banks do fund up to 70pc