Buying a Comm property..

[SamSiam]

Throwing some ideas around in my near empty head.

Wondering if anyone can give some advice on Commercial properties out there for circa $1 million. At that amount no finance required to purchase....++ costs.

What sort of rental is achievable with that ?

Capital gains historically.

Any area can be considered as I do not live in the country.

And overall what is the reliability of a good performing property in this field.

I have a commercial property now, but I am spoilt with this one as it is by no means your standard run of the mill property with all the associated issues. So looking for some info from the real world re Comm, not from my bubbled world of it currently.

All and any info well appreciated.

Cheers

 

[Scott No Mates]

Many commercial properties in Sydney are offering net yields of 7-8% for buildings with a lease but with some negotiation this would increase.

Older properties which need work will have higher yields but would be harder to attract a tenant so vacancy period will be longer.

 

[HiEquity]

Throwing some ideas around in my near empty head.

Wondering if anyone can give some advice on Commercial properties out there for circa $1 million. At that amount no finance required to purchase....++ costs.

Personally with that amount of equity available I would buy something bigger with leverage. IME properties in the $2-$3m range tend to be significantly superior than those in the $1m range. And some properties in the $5-$10m range (allow me to dream for a second here...) can only be described as screaming bargains. There are just fewer buyers around the higher you go (with a sweet spot around $5-$10m which is too small for the big funds and too big for the average individual investor) and the quality of tenant/lease steps up to those able to afford the higher rents. They don't call them "investment grade" properties for nothing...

But YMMV - I'm sure there are decent properties around in that range as alluded to above. It might just take a bit more looking to find something that ticks enough boxes... which is the thing about commercial / industrial - there are just so many variables - lease quality and length, tenant quality, treatment of outgoings, land / building value, current rent vs market rent, yield, ratchets, body corporates / green title, etc etc etc the list goes on. The only certainty is each property will be a completely unique proposition as an investment and only you know the characteristics you value.

Good luck with the search...

 

[Dazz]

Nice post Hi Equity. Couldn't of said it better.

 

[SamSiam]

Thanks.

I want the property for income, so by buying at $2 million or more, then obviously the income is reduced somewhat with costs.

Also borrowing would be limited because of my personal situation.

Did not know commercial was so 'complicated'....I am wishing to simplify my life.....I currently even hate paying gst and land tax just a few times a year.

 

[Aaron_C]

Just because you reside overseas doesn't mean that you can't borrow. All that matters to the bank is your interest-cover-ratio and LVR.

 

[HiEquity]

Thanks.

I want the property for income, so by buying at $2 million or more, then obviously the income is reduced somewhat with costs.

This is obviously incorrect. If you buy a property with a net yield of 10% and borrow at 8% you make more income from a $2m property than a $1m property without borrowings. Just have to buy a property with a net yield above the interest rate on your borrowings for this to happen... which may not be easy but isn't particularly hard either.

 

[Rolf Latham]

This is obviously incorrect. If you buy a property with a net yield of 10% and borrow at 8% you make more income from a $2m property than a $1m property without borrowings. Just have to buy a property with a net yield above the interest rate on your borrowings for this to happen... which may not be easy but isn't particularly hard either.

trust an engineer to use a sanity check

ta
rolf

 

[SamSiam]

As long as interest rates do not go through the roof also right ??.....and it remains tenanted full time right ??

Buying a 3mil property with 1 mil down at a 10% income and an 8% loan....I would happily at this stage in my life forgo the extra 40k that I might reap if all things remain the same...ie...no vacancy for extended periods and rate rises.

Also the limited borrowing ability would be due to income not being verifiable from overseas at that time......there could be at that time also NO income within Australia and I would want/need the 10% as income...not less 8% and only get 2% as income if any institution would lend on the property income alone.

I appreciate all the feedback.

As I mentioned in OP...I am spoiled with my current comm property, but I have a project in mind and it is quite possibly time to cash in those chips and make better use of them elsewhere.

 

[Aaron_C]

Sam,

For commercial properties, lenders lend on property income alone all the time...in fact most people at the bigger end of town solely rely on rental income for servicing - as long as you can service the debt.

 

[SamSiam]

Really ??

I thought the overall picture...which would include other assets and income play a major role.

So you are saying that a property alone worth $2 million with for round figures a 10% net income (are there many of those around these days)...with $1 million deposit could easily raise the other $1 mil based on the property's income alone, nothing else ?.....as long as interest rates remain below 10%


How much does a chapel St shop go for these days ??

I was thinking industrial commercial as opposed to retail though.

 

[Aaron_C]

Overall picture is important but at the end of the day it is the income which matters. So your example is correct.

A chapel street shop goes for about a 4% yield these days so certainly nowhere near 10%.