Why Commercial ?

I think that a few of us will have to scratch our crystal balls & ponder for a little while.

Will large companies go to the wall, releasing their talent who will set up 5 - 10 new Start-ups for each failure or will small business go to the wall creating vacancies? Anyone's guess.

 

Out of curiosity I have been watching the vacancy rate for the 12 industrial units at Raymond Terrace I owned till sold 5 years ago. They were always a good cash flow as they were never all vacant. When sold all 12 were leased and at the moment only 3 are vacant, a 4th was vacant for about 8 months and was recently leased. They were a good investment ... am I sorry I sold? maybe ... ATM

 

Yes , I would say there is going to be quite a lot of ball scratching to be done

There should be some good opportunities coming up

 

Where do you find vacancy rate? Internet or any subscriptions?

 

Anecdotal metrics - do a drive-by and count the signs.

Hard metrics - check out various commercial agents' research publications.

 

Just spent the last while re reading this great thread and all the gold nuggets of wisdom. It would be great to hear some of the capital growth achieved in commercial property lately as well as what is happening with cap rates etc.

 

@Beano just became a part owner in a virtual office company which leases office space and meeting services to other businesses. Did all my research and looks like a solid opportunity. Just took over 3 levels.

Just wondering generally speaking if you've had any dealings in this space and your experience? Thanks

 

No I have very little office (only about 10% of the portfolio) but I am keen to know more about how your one works

 

Cap rates today are about 7% to 8% so on say a $1m property the net rent is about $75k, interest (based on 100% borrowing) $27k so earnings before taxation is $48k.

Yield compression/demand , increased rental , change of use , filling vacancies , improved utilisation affect CG.

 

Basically we provide flexible working spaces allowing businesses to manage their costs without the lock in of large leases. Essentially if they want to, they can lease the space on a month by month basis as well as a whole host of business services, eg meeting rooms, receptionist answering phones with specific business names etc.

My friend who owns the company expanded 3 levels due to huge demand so I have a share in the operations/profits of those levels. We haven't even completed renovations yet and occupancy (paid in advance) is already at 80%.

I haven't gotten into much commerical stuff in Australia ( only in Asia and in a totally different area) so it's really a new world for me though I have a lot of experienced folks helping me through it.

I just wondered your experience with office space is all.

Cheers

 

I really do not have a clue what CG has or will occur but the net income (before interest and taxation) range from 6.41% to 40%
Cost of commercial funding 2.7%
With such a great margin you can see how massive profit are generated !

 

My office model is low rental and encourage the tenant to put a bit $$ into the premise (like $600+ m2) .
Then they feel committed to the space .

 

This sounds like a shrewd strategy.
We do something similar with the farm where the tenant shares in the cost of some key capital works projects and so far everyone is happy. Yield is low but capital growth has gone from 5k per acre to about 8k per acre the last 12 months. Proportionally growth on good cropping land has been much greater for a variety of reasons but we own dairy. Still very good. Cost of funding is 2.5% and .98% (concessional loan)

 

With this model (little capital upgrades) then the loans are reduced rapidly (most loans are fully repaid within 10 yrs ) from the high margins while the property is still improved by the tenant (just the way they want it) !

 

Yes, finding the capital for improvements and upgrades is awkward for me and I would far rather receive a bit less in rent and have the tenant take some responsibility.

 

Would love to know where to find deals that yield in 10%+ let alone 40%+!

 

You just need to look , buy and hold .
The property will eventually yield 40+ % on cost .
The first property I saw and brought would return in rental $360pw (gross) at a cost of $5k purchase price (1972).
The one I brought in 1998 for $2.3m returns $900k net rental
The one purchased in 2016 returns after 100% interest servicing cost and all other expenses (except income tax) $600k net
I posted on PC in 2019 my mates purchase that yield 11% on purchase now yields 21%
Later this month I will settle on a 7.5% net yield funding 2.7%
Just need to start early and keep going
No secret or magic formula just patience and persistence.
Time looks after the rest.

 

Is this cap rate for VIC? Haven't seen this rate in VIC at all.

 

NZ

 

There’s no capital growth in my areas which is CBD. Values are flat.