Yields in commercial

@Beano - the Darrell Lea sale was a distressed sale.

 

Yes i am also distressed , distressed I did not buy it !

 

I assume when the yield was 10%?

I battle to understand paying a 4% yield when the cost of a mortgage is say 5-6%. This is obviously a different playing field where funds buying these assets use significantly lower leverage at cheaper rates or it could be foreign money from overseas borrowings at lower rates. This is ignoring development opportunities where I understand yields can be rock bottom, quite different to buy and hold.

 

There are lots of reasons why people buy with no profit margin
1 potential CG
2 potential increase in rental
3 merge the site with another
4 redevelopment
5 spare cash
6 low cost of funds
7 owner occupiers
8 business needs to operate in that locality
I myself prefer to buy with a reasonable margin

 

Assuming 4% nett yield, 50% deposit (opportunity cost 2% interest on term deposit) & $2,000,000 purchase price.

Interest = $40k, rent $80k, still $40k cf+, same as a term deposit but with upside risk.

 

There are also cash buyers who don't think about profit margins too much, they just need it paying some income and are in it for future value.

Personally I would most likely focus on commercials that cost less than they pay through rent, but thats only for now!

 

I am the same as you @Beano but I agree people can have quite different motives. I follow more "a bird in the hand" strategy and look for a margin. I like cash in my pocket from day 1 but there does also need to be the potential for CG as well so generally a small CIP in rural town does not do it for me no matter the yield. I rather seek a balance between yield and CG potential, ensuring it is CF+ from day 1.

 

Know the building well, and the agents well (was just with them on weekend).

It's a sky high price is all I can tell you. Heritage listed, Central Business Zone (ie height limits), plot ratio issues on 38x sqm.

I own sites around it within 100m. When they bought it, yields were sub 3.5%. If any owner in the city commands this type of valuation, they've just tripled their net worth.

 

Which one in particular did you mean

 

Corner Bourke/Russell.

It's a CBD record land price, $88000/sqm, with no development potential. Beats me.

 

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

― Warren Buffett

 

Haha I just asked my friend who's the agent to sell everything at same price/sqm

 

He will be agent of the year!

 

Haha he's already top 10 at his firm in Aust I heard.