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    Default A nice little earner

    A nice little earner
    Sunday, 12 August 2007

    Quality commercial rental properties are being snapped up, Greg Ninness discovers.

    Modestly priced commercial property investments are proving an extremely popular alternative to residential properties.

    "In today's market you can still get freehold, stand-alone commercial property for about $300,000 if you look hard and are prepared to wait for one to come onto the market," Bayleys commercial broker Dominic Ong said.

    At that price they are likely to be a neighbourhood retail shop like a dairy, takeaway bar or bakery and there will be no shortage of investors willing to buy.

    "Those types of properties for under $500,000 are very, very popular because they are so affordable," Ong said.

    A recent example of that was a block of eight small shops in the Balmoral shopping strip on Dominion Rd in central Auckland, which were auctioned by Bayleys.

    Balmoral has gone the way of many suburban shopping centres in recent years.

    It was once a thriving neighbourhood shopping centre but the advent of modern malls such as St Lukes, which is just up the road, saw Balmoral's retail properties go into a steady decline.

    But its fortunes have been revived by the influx of immigrants into the area and many of the former drapery and hardware stores are now bustling ethnic eateries.

    The block , which was previously home to a large secondhand furniture store, was bought by developers Dave and Des Fermah and redeveloped as a block of eight modern shops.

    After completing the redevelopment the Fermahs secured tenants for all the stores, mostly with long-term leases. By the time they were auctioned, all but one of the units had been tenanted for 12-18 months, which gave potential buyers considerable confidence. All were on unit titles.

    The auction achieved these results:

    # A 52sq m street front unit occupied by Super Pollo restaurant on a 10-year lease from January 2005, producing net rent of $26,000 with two-yearly rent reviews, sold for $480,000 (5.4% yield).

    # A 53sq m street front corner unit occupied by Super Turkish Kebabs on a 10-year lease from January 2005, producing net rent of $34,450, sold for $600,000 (5.7% yield).

    # A 53sq m unit occupied by Rice restaurant on a six-year lease from December 2004, producing net rent of $23,850 a year, sold for $378,000 (6.3% yield).

    # A 53sq m unit occupied by Bombay restaurant on an eight-year lease from February 2006, producing net rent of $24,075, sold for $364,000 (6.6% yield).

    # Two adjacent ground floor tenancies with first floor space above, of 139sq m and 86sq m, occupied by an internet cafe and computer service company, providing total net rent of $77,500 a year, sold for $1 million (7.75% yield).

    # A 50sq m unit occupied by Banzai Japanese restaurant on a 10-year lease from January 2005, providing net rent of $25,000 a year, sold for $381,000 (6.56% yield).

    # A vacant 74sq m unit providing rent of $39,000 a year until next December was passed in at $400,000.

    Ong said half the units sold to investors buying their first commercial property and the other half to more experienced players building up their portfolios.

    Such properties had several advantages over residential investments, he said.

    With a commercial property the tenant usually paid all outgoings such as rates, insurance and body corporate fees, which were usually the landlord's responsibility with residential property.

    Additionally, a commercial tenant was usually responsible for the fit-out of their premises.

    So provided a strong tenant was in place with a long-term lease, it really could be a hands-off investment where all the landlord had to do was check their bank statement each month.

    to make sure the rent was paid.

    eThe main disadvantage of commercial property was that it could take a long time to find a suitable tenant if it became vacant, whereas a residential property could usually be re-let fairly quickly.

    The yields were also generally a lot better on commercial property than residential, so most commercial investors bought for income rather than capital gain,

    The most common mistake by novice investors was to buy a commercial property rented for above-market rates, Ong said. The yield might look good, but if they lost a tenant it could be difficult to find a replacement.

    http://www.stuff.co.nz/print/4161546a6445.html
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx


 

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