Can Someone Teach me the Basics of Commercial Property?

[Glenn]

A superior mean is modest in his speech but exceeds in his actions.
Confusius

[AucklandNZGuy]

Hi guys,

interesting reading! I've used this site to gain some invaluable guidance in buying our current house...
and it was spot on.

about us, we are a couple (31 and 28 ) who currently have significant equity in our home near the cbd (approx 60%). It's been a painful slog but we are getting there!

we are now considering buying a commercial property which is lower risk - if there's such a thing. Similar to this thread, would love any guidance. Is there any preferred type of commercial - office vs retail vs factory?

dont mean to be cheeky but any feedback would be appreciated.

[DaveW]

we are now considering buying a commercial property which is lower risk - if there's such a thing. Similar to this thread, would love any guidance. Is there any preferred type of commercial - office vs retail vs factory?

dont mean to be cheeky but any feedback would be appreciated.

I'm not sure if commercial property is lower risk. Businesses occupy commercial property and they are subject to economic conditions. Residential are always occupied.

You can reduce the risk in commercial by buying good location which is always in demand.

Whether you buy retail, industrial or office, you should buy in an area which is dominant in that sector. eg. don't buy an office in an industrial area.

For your first commercial property it is a good idea to buy one with multiple tenancies in order to split the risk in case one moves out you still have rent to cover the mortgage and expenses.

Its good to be cheeky.

Before you go unconditional feel free to post the property details on here for comment.

[AucklandNZGuy]

Thanks Dave. Thats perfect/sound advice, I'll keep up the search and let you know once we've identified a property we are seriously considering. I would appreciate them comment.

I would hope to buy something around the half a million figure - but will spend a while now learning the market. I 'd love to end up in West Auckland somewhere!

residential - main risk is any possible downtown. My theory is that should that ever happen, commercial May not be impacted in such a big way.

I'm not sure if commercial property is lower risk. Businesses occupy commercial property and they are subject to economic conditions. Residential are always occupied.

You can reduce the risk in commercial by buying good location which is always in demand.

Whether you buy retail, industrial or office, you should buy in an area which is dominant in that sector. eg. don't buy an office in an industrial area.

For your first commercial property it is a good idea to buy one with multiple tenancies in order to split the risk in case one moves out you still have rent to cover the mortgage and expenses.

Its good to be cheeky.

Before you go unconditional feel free to post the property details on here for comment.

[Glenn]

Hi guys,

interesting reading! I've used this site to gain some invaluable guidance in buying our current house...
land it was spot on.

about us, we are a couple (31 and 2 who currently have significant equity in our home near the cbd (approx 60%). It's been a painful slog but we are getting there!

we are now considering buying a commercial property which is lower risk - if there's such a thing. Similar to this thread, would love any guidance. Is there any preferred type of commercial - office vs retail vs factory?

dont mean to be cheeky but any feedback would be appreciated.

Dave is pretty well spot on there. Obviously each city and each area with each city is different.
Way more variance than residential.
I did exactly what you are proposing in 1991. That is bought a commercial as my second investment and my first decent sized investment. I could have purchased two cheap residentials for the same input. Sure I have prospered because the initial net rate of return was 10.4%. One trouble free tenant for 18 years. In hind sight I would have been far better to have purchased perhaps three or four flats or houses. The capital gain and rent growth has been way less than residential. Over the years I have had to pay a higher interest rate, and was usually able to only borrow a much smaller LVR than I could have done in residential. Sure I have never had any rent loss and only about 4 months loss of rent due to vacancies. Maintenance has been insignificant. Thus said I have another commercial investment purchased at a later date that has had amazing capital and rent gain.
I have heard recently that other very experienced and successful investors have found the same. Some commercial investments are fantastic and others not so great. Even the experts get it wrong occassionaly.

[Wayne]

residential - main risk is any possible downtown. My theory is that should that ever happen, commercial May not be impacted in such a big way.

Why would you think a downturn in residential won't impact commercial?
Commercial is much more locked in to the state of the economy than residential is - at the end of the day people still need a place to live even if businesses go bust.
IMHO commercial is far greater risk. I have never had a residential vacant for more than 1 week but try 18months with an empty warehouse!

You may do well like Glenn seemed to have but maybe not. I wouldn't go there as a 2nd purchase in the current market. Glenn's 10.4% commercial are neigh on impossible in todays market - more like 7-8% - and finance is harder (60% equity min) and more expensive.

[DaveW]

Why would you think a downturn in residential won't impact commercial?
Commercial is much more locked in to the state of the economy than residential is - at the end of the day people still need a place to live even if businesses go bust.
IMHO commercial is far greater risk. I have never had a residential vacant for more than 1 week but try 18months with an empty warehouse!

You may do well like Glenn seemed to have but maybe not. I wouldn't go there as a 2nd purchase in the current market. Glenn's 10.4% commercial are neigh on impossible in todays market - more like 7-8% - and finance is harder (60% equity min) and more expensive.

Agree with the first paragraph but like I said you can have smaller size commercial multiple units and often these are half live in commercial / residential.

The 2nd paragraph is not correct. I recently bought a 10.8% with upside to 13%. They are harder to find but they are there. Westpac were happy with 67% lending at 6.8% interest only, and contributing to lawyer fees.

[Maccachic]

Make sure you are aware of Earthquake requirements this has hit some investors quite hard - it doesn't always have to be an expensive fix dending on what the issues are.

[PTWhatAGreatForum]

Another thing to keep in mind with commercial is there is lots being built but I don't see a comparable growth in the number of businesses. It could happen in a place like Auckland (because of population growth) but could take some time. Then again, New Zealand is the land of home businesses. Pick your option and take your chances.

If it were me, I'd look at property which can do both, preferably at the same time... or a property which could be upgraded. Most like a primarily residential property which could be setup with an office/shop at the front...

[Glenn]

The trouble with simple solutions like combined residential and workshop or what ever is I have noted they are not always received the same way in each area of the country.
Some big boys came up from Canterbury and built some here. I have seen them down there and they appear popular.
The development here has not been so well received. In the end they seem to have accepted somewhat lower grade tenants than I would like to put in something new.
Horses for courses is the saying. The world is not flat.

[PTWhatAGreatForum]

The trouble with simple solutions like combined residential and workshop or what ever is I have noted they are not always received the same way in each area of the country.
Some big boys came up from Canterbury and built some here. I have seen them down there and they appear popular.
The development here has not been so well received.

I suspect that is more indicative of Nelson's limited commercial environment. Outside of tourism and hospitality who's commercial premises requirements are very industry specific - there just isn't that much going on there. It's also a grossly overpriced city. My 2 top picks for location appropriateness are Auckland and Hamilton, though I don't like the numbers for Auckland - it's also grossly overpriced.

[speights boy]

I suspect that is more indicative of Nelson's limited commercial environment.

Actually, they have improved a lot lately.
This latest effort of theirs on their waterfront is a lot better than some of the previous rubbish they built.

Boulder Bank shack looks ship-shape | Stuff.

[PTWhatAGreatForum]

Actually, they have improved a lot lately.
This latest effort of theirs on their waterfront is a lot better than some of the previous rubbish they built.
Boulder Bank shack looks ship-shape | Stuff.

I support the guy who built that.

[speights boy]

I'm sure you do.
And he sounded like an OK chap.
However it appears he lost this round.

[PTWhatAGreatForum]

I'm sure you do.
And he sounded like an OK chap.
However it appears he lost this round.

It's one of the instances I wish equal measure upon the people involved in that henious act of inhumanity. Amazing what people will do when they're told, and never stop to ask why and consider who they serve.

What in the world you thinking of?
Laughing in the face of love
What on Earth you tryna do?
It's up to you, yeah, you

Instant Karma's gonna get you
Gonna knock you right in the face
You better get yourself together darling
Join the human race

- Instant Karma, John Lennon