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  • commercial property investment

    Just a stupid question about commercial property. Is it still a bad investment? I mean 8% yield and 2+2+years of guaranteed tenancy looks really good. But during the last 8 years there were no capitalisation effect at all, zero! Are there any signs that the situation might get changed? I mean there are not enough houses in AKL, but plenty of offices and loosing a tenant might mean 1 year of empty pockets...
    The question is should I sell (and buy a house) or should I go on (enjoying good yields)?..

  • #2
    More details needed.

    Are you saying you currently have a commercial property? And that it's providing a good yield but not going up in value?
    Squadly dinky do!

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    • #3
      Exactly.
      I have one commercial property and two residential houses for rent. Commercial property is not demanding when it is tenanted unlike residential houses, which need constant minor R&M. I'm just frustrated about that investment in commercial building. Those days houses and offices were priced the same, but houses in the same area showed 300% capitalisation growth since then... The question is should I expect some price tag growth for commercial real estate in foreseeable future? Commercial rent is growing slower then residential, but the difference is not as dramatical as capital value difference. Statistics shows that the supply is 3% lower then the demand, so why the prices do not grow?!
      What's wrong with commercial investment properties?

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      • #4
        2 years then the tenant may not renew. It's not that long really. Where is it located ?
        Profiting from Property, not People

        Want free help on taking your portfolio to the next level?

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        • #5
          2+2+2 is not guaranteed rent - the first 2 maybe but the others just tie you to not having someone else in the place if they do want to renew.

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          • #6
            Originally posted by ial View Post
            Exactly.
            I have one commercial property and two residential houses for rent. Commercial property is not demanding when it is tenanted unlike residential houses, which need constant minor R&M. I'm just frustrated about that investment in commercial building. Those days houses and offices were priced the same, but houses in the same area showed 300% capitalisation growth since then... The question is should I expect some price tag growth for commercial real estate in foreseeable future? Commercial rent is growing slower then residential, but the difference is not as dramatical as capital value difference. Statistics shows that the supply is 3% lower then the demand, so why the prices do not grow?!
            What's wrong with commercial investment properties?
            Where is it located ?
            Profiting from Property, not People

            Want free help on taking your portfolio to the next level?

            Comment


            • #7
              Originally posted by ial View Post
              Exactly.
              I have one commercial property and two residential houses for rent. Commercial property is not demanding when it is tenanted unlike residential houses, which need constant minor R&M. I'm just frustrated about that investment in commercial building. Those days houses and offices were priced the same, but houses in the same area showed 300% capitalisation growth since then... The question is should I expect some price tag growth for commercial real estate in foreseeable future? Commercial rent is growing slower then residential, but the difference is not as dramatical as capital value difference. Statistics shows that the supply is 3% lower then the demand, so why the prices do not grow?!
              What's wrong with commercial investment properties?
              Yes i have found the same but the great cashflow has meant the debt is greatly reduced and profitability comes from debt reduction as well as profit
              Due to low yields in residential this is not possible

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              • #8
                Hmmm I am experiencing the same thing with my Papakura property.

                I built it 6 years ago, it has 3 apartment, and office tenancy and a retail tenancy.

                The apartment rents have gone up quite a bit (39%), the office rental has gone up 28% and the retail rent has gone up 11% - and may in fact go down from here as the lease is nearly up and it will come vacant.

                The thing is, you can't see this sort of stuff in advance. Things may change around the other way again in the future.

                Also, the commercial properties have still gone up in value. Cap rates are way down. Not the silly prices you see in the residential sector, but close.

                I still prefer commercial. Much less hassle and higher yields. Just not the wild upswings in value I guess.
                Squadly dinky do!

                Comment


                • #9
                  Originally posted by Davo36 View Post
                  Also, the commercial properties have still gone up in value. Cap rates are way down. Not the silly prices you see in the residential sector, but close.

                  I still prefer commercial. Much less hassle and higher yields. Just not the wild upswings in value I guess.
                  probably it's better not to put all the eggs in one basket and keep both commercial and residential. Office prjperty does help a lot to pay the mortgages, but it's not as good as residential for a fin leverage.
                  I'm not very much in favour of retail. What are your thoughts about leisure property? Motels/hotels were the leaders in capitalisation growth among all commercial, I recon.

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                  • #10
                    after 2 years they are to sign a new contract for 2 years. Last time there was minor price increase, but really tiny. The good thing is if they decide to move somewhere else, they still owe you the rent for the rest of the term. It is completely different from what we have in residential market, when people move out without any notice and all you have is their bond.

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                    • #11
                      My flats are valued using cap rates in Wellington, which has been great because a) cap rates are down and b) they were straight forward to increase rents for.

                      I agree with Beano, reducing debt is a good thing.
                      Free online Property Investment Course from iFindProperty, a residential investment property agency.

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                      • #12
                        Originally posted by ial View Post
                        after 2 years they are to sign a new contract for 2 years. Last time there was minor price increase, but really tiny. The good thing is if they decide to move somewhere else, they still owe you the rent for the rest of the term. It is completely different from what we have in residential market, when people move out without any notice and all you have is their bond.
                        When DD is done properly with tenants, landlords should not have tenants that just move out without notice. Same with commercial isn't it?

                        When people move out in residential, you get new tenants in within 2-3 weeks.

                        Why not lock in your tenants longer?

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                        • #13
                          Originally posted by ial View Post
                          after 2 years they are to sign a new contract for 2 years. Last time there was minor price increase, but really tiny. The good thing is if they decide to move somewhere else, they still owe you the rent for the rest of the term. It is completely different from what we have in residential market, when people move out without any notice and all you have is their bond.
                          I gather this is in reply to my comment on 2+2+2?
                          After the initial 2 years they can decide (or not) to sign for another 2 years (they don't have to).
                          If they decide, after the initial term, to leave they don't owe you anything.

                          If the tenant decides to leave before their term is up then they owe you the rent but if the company has failed you become a creditor - probably along with all the others.
                          You may have a personal guarantee but often that isn't really worth much - you can't get blood out of a stone.
                          In residential at least you have an actual bond for a few $.

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