Can Someone Teach me the Basics of Commercial Property?

[Beano]

I believe he is talking about cash flow, commercial has good cash flow residential has the capital gain.

100pc correct ...commercial i could continue to buy and net a substantial amount of cash flow Auckland residential massive capital gain but small portfolio. ..hard tk say if i would have been better off with all auckland residential ��

[Glenn]

100pc correct ...commercial i could continue to buy and net a substantial amount of cash flow Auckland residential massive capital gain but small portfolio. ..hard tk say if i would have been better off with all auckland residential ��

Totally agree. I am in "end game" times with my investing. I keep wondering if I have done the correct thing over the last 25 years.
I look at the way various properties have performed.
The capital gain and even some of their rents have been extremely variable over the years.
Yet 100% of the houses have all been amazingly similar on capital gains and most rents have been modestly slightly variable.
One of these days I must sit down and do a discounted cash flow and present worth analysis based on the now know interest rates and inflation over the years.
On the basis of gut feelings and current outcomes I am sure the consistent 10% from day one returns on commercial has been the core reason for success.

[Wayne]

Can you get 10% in Commercial these days?
Yields have dropped ridiculously low really.

[Glenn]

Can you get 10% in Commercial these days?
Yields have dropped ridiculously low really.

Well yes you can but it is all done with mirrors and cobwebs.
In my above post I posted "10% from day one" in several of my purchases day one was back 15 and 20 years ago.
However one I purchased this year you might be interested in. 7.3% net return. But interest on 100% finance is much lower. 50% of the mortgage at 4.4% and the other 50% at 5%. This "sort of" leaves me $18000 profit for zero down. Just how does someone work out that yield? It is off the scale.

[Nick G]

Friend of mine just cashed in some of his properties picket up and held during the GFC and boom in Auckland and bought a $5mil commercial property in Auckland. 9% nett.

[Wayne]

$5mil - that's the key.
Properties under $2mil are popular with mums and dads (and owner occupiers) but $5mil is a different market.

[Beano]

Well yes you can but it is all done with mirrors and cobwebs.
In my above post I posted "10% from day one" in several of my purchases day one was back 15 and 20 years ago.
However one I purchased this year you might be interested in. 7.3% net return. But interest on 100% finance is much lower. 50% of the mortgage at 4.4% and the other 50% at 5%. This "sort of" leaves me $18000 profit for zero down. Just how does someone work out that yield? It is off the scale.

I would say the yield is 7.3% cost of funds 4.7% so net margin of 2.6%
Its a great situation !
ps what type of commercial property ?

[Beano]

$5mil - that's the key.
Properties under $2mil are popular with mums and dads (and owner occupiers) but $5mil is a different market.

And the larger properties there is competition from syndicates , super funds etc
Atleast the yields are still much better than residential!

[Wayne]

I would say the yield is 7.3% cost of funds 4.7% so net margin of 2.6%
Its a great situation !
ps what type of commercial property ?

Unless it becomes empty.
The big difference between residential and commercial is
Residential - can always rent for something. Maybe lower but you can rent
Commercial - if no one wants to rent it then no one rents it, no matter what you do to the price.

Also with commercial when you lose a tenant your income goes down (no rent) and your expenses go up (you now have to pay the utgoings).

[Davo36]

Friend of mine just cashed in some of his properties picket up and held during the GFC and boom in Auckland and bought a $5mil commercial property in Auckland. 9% nett.

Lol, these things are always made to sound better than they are in actuality. 9% is a high yield even in that price bracket.

Got a link to the property?

It will be either a) In a secondary location, b) Have lots of difficulties of one kind or another, c) Have really old buildings, basically falling down, d) Be totally over rented...

Or something like that.

[Nick G]

I'll ask him, it settles on Friday and I assume he'd prefer to stay under the radar because people can be traced, but no to all of your assumptions. I've seen it.

[Davo36]

Righto, for sure.

Gosh I feel so bad I'm missing out...

[Beano]

Bayley's Total Property (they produce one of these a few times a year) which have the properties for sale/auction/tender have a great summary of recent sales.
Most of these have the sale price and many of these have the net Yield
They also give the address and details about the property ....great booklet
You can pick these up from any of the Bayley branch or they will send it to you
ps I have brought from Bayleys!

[Davo36]

Yeah I read these. And I've bought from them too.

The thing is, yes, they give the sale price and the net rent (sometimes) but you still really need to know more detail to know if it was a good buy or not. Like, who are the tenants, how many of them, what do they do, how long have they got to go etc. etc.

Or maybe there's extra land with the property, or maybe you can knock down the existing place and whack up a 15 level apartment tower...

And was it sold to a third party buyer or did the neighbour buy it and pay a premium to do so? And on and on.

So to really understand sales data you have to actually do quite a lot of work I reckon.

[Beano]

Yeah I read these. And I've bought from them too.

The thing is, yes, they give the sale price and the net rent (sometimes) but you still really need to know more detail to know if it was a good buy or not. Like, who are the tenants, how many of them, what do they do, how long have they got to go etc. etc.

Or maybe there's extra land with the property, or maybe you can knock down the existing place and whack up a 15 level apartment tower...

And was it sold to a third party buyer or did the neighbour buy it and pay a premium to do so? And on and on.

So to really understand sales data you have to actually do quite a lot of work I reckon.

Yes I agree
The buying process and work we spend on properties encourage us to never sell! ...especially at these low interest rates