RIGHT NOW everyone is rather confused because of COVID. And what I generally find is that when investors are confused … they tend to do nothing.
Yet despite the dire predictions of market collapses, that’s NOT what has occurred. Sure, the share market has been rather volatile. However, the property market has basically held up well.
And the reason is that what we are going through is a medical crisis … which is having economic implications. As opposed to the GFC – where there was a total collapse of the financial system.
What’s really going on?
During briefings with clients, I have explained that in such circumstances demand doesn’t disappear … it simply gets deferred.
And despite all the hardship caused by lockdown and people losing jobs … those families who have actually benefited from the massive government incentives … now have more cash in the bank, than at any time over the past 10 years.
As such, you can expect to see people in general – and investors in particular – embark upon a spending spree, as we emerged from the various degrees of lockdown around Australia.
Based on recent enquiries, many investors are looking to make the transition from low-yielding residential … across to higher-yielding commercial property.
Nonetheless, a number of them do appear to have some basic misconceptions. So, let’s perhaps take a look at 5 of the most common Myths about Commercial property.
1. Moving from Residential to Commercial could prove difficult.
This first misconception simply comes from having insufficient knowledge. And you can quickly bridge that gap having a good consulting team (involving experts in the areas of property, legal, finance & construction).
Some of my most successful clients have been those with little or no prior involvement with commercial property. However, they were clear thinkers; and could quickly absorb & assess the advice being given to them.
2. All I need do is to sift through Internet Portals for opportunities.
When first starting out, many investors believe they don’t need any professional help. However, identifying suitable properties is actually only half the exercise.
When you find a property you like, you then need to fully assess the deal – both physically and financially – before you purchase it.
Once again, to do that properly, you really do need a top consulting team – to ensure your interests are fully protected.
3. I will need considerable Equity to get started.
Again, this is simply not true.
Of course, there will be Commercial properties which sell for millions of dollars. But all you can also able to buy well-leased strata Office suites for between $350,000 and $500,000 … which is basically the same price you would be paying for an apartment.
But here’s the real benefit: your net return from one of these Office suites will be between 5% to 6% per annum … compared with a net return 2% to 3% for apartments.
So, I’ll leave you to do the maths!
4. Won’t it be a nightmare dealing with Commercial Tenants?
Once more, that’s far from the truth.
You see, Commercial tenants run their business from your property. And therefore, they have a vested interest to keep it looking presentable.
Moreover, most leases require your tenant to undertake (and pay for) any required maintenance. And WHEN the time comes for them to leave, there is generally a clause requiring them to “make good” beforehand.
5. Isn’t it more Expensive to manage Commercial property?
If you make the mistake of trying to manage the property yourself, then you could well run into some costly problems. However, that’s the very reason why you would engage a competent managing agent.
And unlike residential property (with management fees of 7%), your management fee for Commercial property will generally range from 3% to 5% of the net rental — depending upon the size of the property involved.
Bottom Line: I realise this just a brief summary – but hopefully, it has helped dispel some of the common myths surrounding Commercial property.
But you can learn more about making a start – simply grab a copy of this FREE Investor’s Guide.
You see, Commercial property is basically just common sense. However, what I found over the years is that common sense … is not necessarily common practice.
There is nothing overly complicated about Commercial property — you just treat it like any other business deal, where there’s a need for a little homework.
And when you start receiving net yields of 5%+ per annum … you quickly appreciate why the change you made across to Commercial property has been worthwhile.