A beginners guide to commercial property investing
WHO IS IT SUITED TO?
'I often find people get started after having an existing residential portfolio,' says REBAA buyers agent Zoran Solano from Hot Property Buyers Agency.
While residential property investing usually requires a deposit size of about 20 per cent, or possibly less with LMI, commercial property is different, says Solano.
'The barrier to entry with commercial property often requires a larger deposit – often 30 per cent or more depending on the style of the property,' he says.
Often, investors will use some of the equity they have built up from investing in residential property over time to fund the deposit for their first commercial purchase.
BENEFITS OF COMMERCIAL PROPERTY
It's a purchase that appeals to many residential investors because of its potential for stronger yield – both gross and net, Solano says.
'Often a lot of your outgoing costs as a commercial landlord are passed on to the tenants themselves, depending on the lease agreement,' he says. 'Outgoings, even down to the rates, insurance and even land tax, potentially, can be charged to the occupant of the commercial property rather than the landlord themselves.'
Buyers agent Steve Palise from Palise Property says commercial property tends to drive much greater returns than residential property when it comes to cash flow.
'Five years ago there were no books or podcasts about it. It was only known by business owners and high net worth,' Palise says. 'Now that people realise you can get three times the cash flow and the same capital growth it is becoming popular.'
There is also the potential for longer lease terms, which can create more stable income, as well as higher depreciation tax benefits, he says.
POTENTIAL PITFALLS
But with any investment, there are also negatives – and risks.
'Vacancy is the biggest killer when it comes to the commercial property sector,' Solano says. 'All we need to do is look at Covid in the last few years and how it's dramatically changed the way people invest in commercial property.'
Vacancy rates rose in CBD locations as people relocated to home-based businesses during the pandemic. Industrial property has also seen a rise with the need for warehouses due to online shopping, he says.
Investors need to have a clear understanding of who their tenant is and how stable their business is as well as wider economic factors at force, he adds.
'People can run reasonably large and successful businesses remotely or from home as well these days, so that is potentially a bit of a disrupter or a risk that commercial investors need to consider,' he says.
There are 'more moving parts to understand' when investing in commercial property, says Palise, which means there are more things you might get wrong.
'There are also different types of property with their own intricacies,' he says, listing retail, industrial and office as three distinct examples. It's also worth noting that zoning and regulations can change over time which makes it hard to forecast how your property will perform, he says.
'Commercial investing needs to be done only once you are educated or using a reputable buyers agent,' he says.
RESIDENTIAL VS COMMERCIAL
Steve Palise from Palise Property says there are several things that set residential property investment and commercial property investment apart. Here are some of the main differences:
* Deposit size – You usually need a deposit of 20-35 per cent for commercial property compared to a deposit of 10-20 per cent for residential property
* Yields – Commercial yields tend to come in at a much higher average of 5-8 per cent net, compared with the 3-6 per cent gross yields of residential, according to Palise's calculations
* Lease terms – Commercial leases are usually much longer than residential leases, and can be as long as 30 years depending on the contract
* Outgoings – While the landlord pays most outgoings, such as repairs, renovations and council rates in the world of residential property, the occupant pays for a lot of these things in commercial leases
* Vacancy – Vacancies can be much more drawn out in commercial investing, as long as two years, while residential tends to be one to two weeks on average
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
News.com.au
2 minutes ago
- News.com.au
Mt Waverley Secondary College zone unit sells for $753k
A Vietnamese family has ended a nine-month house hunt with a $753,000 auction win for a renovated home in one of Melbourne's most fiercely contested school zones. The buyers, whose daughter already attends Mt Waverley Primary, had missed out at several auctions before securing the two-bedroom unit at 4/2 Clive St in the coveted Mt Waverley Secondary College catchment. The father, a lecturer in Vietnam, had been flying in for inspections, determined to keep the family within the prized zone. RELATED: 'Traps': Vic homes you shouldn't buy Shock list of Melb's most sold suburbs Affairs, lies and leaks: Block chaos exposed Ray White Mt Waverley's Jacob Biviano said renovated units were a scarcity in the suburb and this one's quality and location made it hotly contested. 'They'd been looking for nine months, missed out several times, and this time they weren't leaving without it,' Mr Biviano said. 'Being in that school zone was non-negotiable, and renovated units like this just don't come up very often here.' The home is tucked at the rear of the block and had been comprehensively updated by its former owner, who lived in it for several years before renting it out. Polished floorboards flow through open-plan living and dining, the kitchen features stone benches and premium appliances, and a cafe servery window opens onto a north-facing deck and synthetic-turf courtyard. Two robed bedrooms, a modern laundry/bathroom, separate toilet, reverse-cycle heating and cooling, evaporative cooling and a carport round out the low-maintenance package. More than 55 groups inspected the home during the campaign, with three bidders — including a local investor and a buyer from Camberwell — vying for it at auction. The family prevailed just above the $700,000-$750,000 price guide. Mr Biviano said the home's location had all of the right ingredients for buyers. 'You can walk to Mount Waverley and Jordanville train stations, Hamilton Place shops are just around the corner, and you're in one of Melbourne's most sought-after school zones,' he said. 'The past fortnight has been noticeably busier, buyers know spring will bring more stock and more competition, so they're acting now to get ahead of that,' he said. The Ray White Mount Waverley agent said he believes Mount Waverley is poised for another growth surge, with the Suburban Rail Loop on the horizon and Monash and Deakin universities close by. 'Thirty years ago my father was selling here when it was still mostly market gardens,' Mr Biviano said. 'Now it's a premium market in its own right, quieter than Glen Waverley but with exceptional schools. 'I think the capital growth here will rival and could potentially exceed Glen Waverley in the years ahead.'
News.com.au
9 minutes ago
- News.com.au
Rare earths are finally a household name
Interest in the rare earths space has never been stronger The space has made mainstream headlines this year Australian players are leveraging off a strong push by the US and other governments Interest in the rare earths space has never been stronger, as the West ramps up its efforts to secure supply. Rowena Smith, managing director of Australian Strategic Materials, which is developing the Dubbo rare earths project in New South Wales, said the vulnerability of the rare earths supply chain had been known for a long time. 'The awareness has been there, but what we didn't see was action,' she told reporters on the sidelines of Diggers and Dealers in Kalgoorlie last week. 'We saw a lot of talk, a lot of awareness, of people feeling they still had time before they needed to actually do anything, and what has happened with Liberation Day and then China's response of putting restrictions on rare earths is that it's moved that from talk to action – and action with urgency. 'We're seeing that with government. We're seeing it with the magnet producers. We're seeing that with the end markets. 'And the end markets are the car manufacturers, the robotics manufacturers, the defence industries, and they are realising that they are unacceptably vulnerable to supply chain disruption, and they need to have some redundancy in their supply chain, so it's really sped up the discussions.' Hitting the mainstream Rare earths burst into the mainstream media at the start of the year when US President Donald Trump announced plans to purchase Greenland, partially to access its mineral endowment. Trump also signed an executive order which pledged to make the US 'the leading producer and processor of non-fuel minerals, including rare earth minerals', which sparked retaliatory export controls by China. In late April, the US signed a deal with Ukraine that would give the US access to Ukraine's mineral resources in exchange for establishing an investment fund to rebuild Ukraine. At the G7 meeting in June, rare earths was also a major agenda item, with the seven countries involved in the group establishing a Critical Minerals Action Plan. On Sunday night, Australia's 60 Minutes program ran a piece on Energy Transition Minerals' Kvanefjeld rare earths project after sending a crew and reporter to Greenland, helping to spark a run up in its share price ahead of a retraction from the company about statements around the in-ground vale of its resource. Just yesterday, the BBC ran a piece based on a visit to Iluka Resources' government-backed Eneabba rare earths refinery in Western Australia. All this attention has not gone unnoticed by junior companies previously confined to the margins. Victory Metals managing director Brendan Clark told Stockhead that rare earths' day in the sun had been a long time coming. 'I've lived and breathed this for quite a few years now, so I kind of knew it was inevitable,' he said. 'I don't think there's been any commodity before that has … received as much attention from government, where they're willing to, like Iluka, fund up to $1.8 billion in some way or form to develop these projects. 'If you're a base metals project, you've got to go out there and find the money yourself. 'These rare earth projects, you're just getting money thrown at you from multiple governments and multiple sources, so it's actually a whole different ballpark and the promotion is certainly getting a lot easier than when I started out a few years ago.' More than a US story While the US' moves have been a big focus, including its deal to take equity in domestic producer MP Materials, rare earths leaders say the interest is coming from everywhere. In April, Victory received a letter of interest from the Export-Import Bank of the United States for up to US$190 million in project financing support for its North Stanmore heavy rare earths, scandium and hafnium Project in Western Australia. Two months later, it received a US$10 million loan from Saudi Arabia's sovereign wealth fund Sanabil Investments. 'There's a lot of interest coming out of France, the Middle East – it's pretty much everywhere,' Clark said. 'We've got funding opportunities from all over the world, and it's just a matter of us, at the moment, being very strategic about our next steps. 'But in my view, it's pay to play. We're not going to enter into free deals with anyone – if you want our offtake, there's going to be some contribution to developing this project, which is really great for shareholder value, because it just means less dilution.' The Australian government has announced a plan to establish a $1.2 billion critical minerals strategic reserve, which is expected to include rare earths, though Clark has his doubts. 'I just think they're going to be under a great amount of pressure to be able to even secure that kind of supply, unless they do some creative business, because there's so much demand coming from outside of Australia,' he said. Meanwhile, Smith has been spending a lot of time on the road this year to capitalise on the interest. She's been to the US four times, while her team has made another two trips, and she's in South Korea this week. 'We're seeing very strong engagement, so I think it's not just the US who are reacting,' she said. 'I think all of this noise has meant that Korean manufacturers are saying, 'okay, where am I going to get my materials from?' And they're thinking much more proactively about moving up that supply chain, and similarly, we're seeing movement from Japan. 'I think we're seeing everybody moving at the moment. Some are moving faster than others, and I think the challenge for Australia will be keeping pace.' Heavy interest Clark says the key differentiator for Victory was North Stanmore's heavy rare earths. On Monday, Victory updated the resource estimate for North Stanmore, reporting heavy rare earth oxide to total rare earth oxide ratios of up to 83%, which Clark described as 'unheard of'. 'There's no one else in Australia that's publicly listed, or in the world, that has the same scale as us in a clay system with the same ratios of heavy earths,' he said. He said the prices for heavy rare earths outside of China were finally moving. 'Things like yttrium, that was the ugly duckling and I think the least valuable heavy earth at about US$7 or US$8 a kilogram, you're starting to see some non-Chinese prices now for yttrium at US$50 a kilogram,' Clark said. 'So that is a game changer, because the market was so manipulated and brokers and the industry were just following what weren't real prices, and that was the Chinese prices.' ASM is already producing a small quantity of heavy rare earths from its Korean Metals Plant and achieved its first sales last month. Smith said developing the heavy rare earths side of the business was important and noted that US government-backed MP only produced a very small quantity of heavies. ' going to have to work with allied nations to be able to source it, so I think particularly for heavy rare earths, you are going to see investment flowing offshore,' she said.
News.com.au
23 minutes ago
- News.com.au
Billionaire Mark Zuckerberg slowly buys entire housing estate
For years, Palo Alto's Crescent Park was a postcard of California suburban bliss — leafy streets, neighbourly block parties and children coasting on bikes. Now, residents say their once-idyllic enclave has been transformed into a real-life game of Monopoly, with Meta CEO Mark Zuckerberg buying up the board. Since arriving in 2011, the billionaire and his wife, Priscilla Chan, have amassed at least 11 properties along Edgewood Drive and Hamilton Ave, spending more than USD $110 million (AUD $168m). Five homes were folded into an expansive private compound for the couple and their three daughters, outfitted with guesthouses, lush gardens, a pickleball court and a pool with a hydrofloor cover, according to the New York Post. Nearby structures serve as an entertainment hub, staging area for outdoor events, and — controversially — a private school for 14 children, an unpermitted use under city code. In the middle of the compound stands a 7-foot silver statue of Chan, commissioned by Zuckerberg, while beneath it lies 7,000 square feet of underground space that permits describe as basements — but neighbours call bunkers or 'a billionaire's bat cave.' The eight years of ongoing construction have clogged streets with heavy equipment, blocked driveways, and, residents say, knocked mirrors off parked cars, according to the Times. Surveillance is another sore point. Neighbours report cameras trained toward their yards and security guards stationed in vehicles, filming visitors and questioning pedestrians on public sidewalks. 'No neighbourhood wants to be occupied,' Michael Kieschnick, whose Hamilton Ave home is bordered on three sides by Zuckerberg's holdings, told the Times. 'But that's exactly what they've done. They've occupied our neighbourhood.' City records show 56 permits approved for Zuckerberg-owned properties since his move-in. Critics accuse officials of bending to the tech titan. In one instance, police created a tow-away zone for several hours so the family could host a barbecue. Frustrations date to 2016, when Zuckerberg sought to demolish four adjacent homes and replace them with smaller houses and large basements. The Architectural Review Board rejected the proposal, but construction proceeded piecemeal, avoiding another public hearing. Former board member Peter Baltay recalled visiting the site during the review process: 'I said 'I'm standing on the sidewalk looking at this project for review.' He said, 'Well, we'd appreciate it if you could move on.' I was pretty shocked by that.' MORE: 'Greedy' Katy Perry slammed for 'unforgivable' act Greer Stone, a Palo Alto City Council member, said the billionaire has 'been finding loopholes around our local laws and zoning ordinances,' adding, 'We should never be a gated, gilded city on a hill where people don't know their neighbours.' The Zuckerbergs' spokesman, Aaron McLear, told The Post in a statement that the couple has 'taken a number of steps above and beyond any local requirements to avoid disruption in the neighbourhood.' He cited credible security threats as the reason for the protective measures and denied that cameras target neighbours. 'Mark, Priscilla and their children have made Palo Alto their home for more than a decade,' he said. 'They value being members of the community.' Not all interactions are frosty. Security guards now use quiet electric cars, and while Zuckerberg skips the annual block party, last year he sent over an ice cream cart. Before big events, staff have delivered goodwill gifts ranging from sparkling wine and chocolates to Krispy Kreme doughnuts and noise-cancelling headphones. Still, for residents like Kieschnick, the sense of community has been hard to salvage. 'Billionaires everywhere are used to just making their own rules — Zuckerberg and Chan are not unique, except that they're our neighbours,' he said. 'But it's a mystery why the city has been so feckless.'
