Stuff quoted veteran investors Olly Newland and Graeme Fowler today. Both made fortunes in residential property but are now focused on commercial property.
Graeme Fowler bought four commercial properties this year to add to his portfolio of 76 residential, and Stuff says he is considering selling rental homes to buy more business premises.
Fowler likes that fact there aren’t as many rules and regulations with commercial property as there is with residential, and the better yields.
Olly Newland says Fowler is not alone. He sees a steady number of investors who have now find that residential investment is too much work for too little return. They are now looking at commercial property as an alternative.
Stuff’s article outlines the regulatory environment driving this change…
The Government is cracking down on the residential investment sector, but none of the new insulation and heating regulations or increased tenants’ rights will apply to commercial properties.
Commercial landlords can also still claim losses made on their properties against their other income, even though this is no longer possible for residential investors.
Newland said people needed to realise that commercial property was an entirely different proposition.
There were other rules that did apply, such as governing the types of leases used. These are often significantly more complex than a residential tenancy agreement.
A commercial property investment was a business that housed other businesses, he said, and needed to be treated as such.
“It’s very dangerous for a residential investor with no experience to launch in. There’s no mercy if you make a mistake.”
There is no Tenancy Tribunal if things go wrong – you have to take a dispute to court.
You can buy commercial properties for roughly the same price as residential in many places.
But what you earn in rent, compared to that purchase price, tends to be a lot higher.
The return from commercial property is boosted immediately because tenants pay their own rates and insurance.
These are usually the responsibility of a residential landlord.
Newland said it was typical to get 4% to 6% return after expenses on a commercial property but a residential investor would be lucky to get 3% before those expenses were paid.
Nick Goodall, head of research at Corelogic, said investing in commercial property made sense.
But he said it was different to residential property in terms of the types of tenants catered for and leases used so it needed to be well-investigated before people jumped in.
|If you’d like to learn the intricacies of investing in commercial property, find out how on our commercial property courses page, or…
Read the full Stuff article here: https://www.stuff.co.nz/business/115181374/residential-property-investors-hone-in-on-new-target