Glenn, thanks for the reply. I hear what you say about Nelson residential property doubling in four years. But if one's purpose of buying is to sell isn't that trading rather than investing. Sure you can pull some of the equity out to help with the next purchase, but if prices have doubled quickly you can bet your bottom dollar rents have not kept pace, and therefore the next purchase is unlikely to throw off enough surplus cashflow to be a viable investment
I can see much merit in the trading of residential properties - without doubt - but from an investment point of view the rental return (yield), the bad tenants, the vacancies, the fact that you have to pay all the sundry costs despite the tenants getting all (or most of) the benefits indicate to me that commercial is a better horse to ride than residential.
The key with commercial (as I see it) is to buy in areas that are least likely to suffer a serious downturn and buy buildings that suit the widest range of tenants ie stay away from purpose built buildings such as motels. For example, if you bought a retail shop in Auckland's Queen St you could bank on it hardly ever being vacant for a length of time - even if the retail sector haemorrhaged.
You stated that you preferred your residential tenants to your commercial ones. Why? Commercial tenants are business people - just like you are. They understand that you are in business, and that your relationship is a business relationship. Residential tenants, on the other hand, sometimes think of you as a surrogate parent, a charity, an entity to take your frustrations out on, a greedy money-grabbing landlord, a dim-witted fool or anything else that can justify their poor behaviour - not all tenants are like this of course. Some residential teants are fantastic (I am one at the moment, myself), but too big a portion abuse the relationship.
However, the one thing I learned from reading Graeme Fowler's book is that every succesful investor seems to approach the game with their own rules, and the rules that work for one person can be discarded by the next. My questions are merely because of my curiosity. I am constantly learning, and when I hear people advocating a different path I wonder why. I wonder if there is room for me to change direction a little. At this point I think not, but this, like all of my rules, is NOT set in stone.
Julian
I can see much merit in the trading of residential properties - without doubt - but from an investment point of view the rental return (yield), the bad tenants, the vacancies, the fact that you have to pay all the sundry costs despite the tenants getting all (or most of) the benefits indicate to me that commercial is a better horse to ride than residential.
The key with commercial (as I see it) is to buy in areas that are least likely to suffer a serious downturn and buy buildings that suit the widest range of tenants ie stay away from purpose built buildings such as motels. For example, if you bought a retail shop in Auckland's Queen St you could bank on it hardly ever being vacant for a length of time - even if the retail sector haemorrhaged.
You stated that you preferred your residential tenants to your commercial ones. Why? Commercial tenants are business people - just like you are. They understand that you are in business, and that your relationship is a business relationship. Residential tenants, on the other hand, sometimes think of you as a surrogate parent, a charity, an entity to take your frustrations out on, a greedy money-grabbing landlord, a dim-witted fool or anything else that can justify their poor behaviour - not all tenants are like this of course. Some residential teants are fantastic (I am one at the moment, myself), but too big a portion abuse the relationship.
However, the one thing I learned from reading Graeme Fowler's book is that every succesful investor seems to approach the game with their own rules, and the rules that work for one person can be discarded by the next. My questions are merely because of my curiosity. I am constantly learning, and when I hear people advocating a different path I wonder why. I wonder if there is room for me to change direction a little. At this point I think not, but this, like all of my rules, is NOT set in stone.
Julian
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