A practical handbook on making money as a commercial property investor in New Zealand.
Tuesday, February 12th 2008, 12:00AM
by The Landlord
Reviewed by Richard Gruiters, on behalf of Good Returns Bookstore
The Commercial Real Estate Investor’s Guide gave me a clearer picture of the pros and cons of commercial versus residential property, their similarities and differences, the oddities of commercial property and the different types of commercial properties and their pros and cons.
As an investor in residential property, I have always wondered about and been intrigued by commercial property. Prior to reading this book, I had plenty of thoughts and questions running through my head:
- Is commercial property as difficult as I imagine it to be? - What similarities are there between residential property and commercial property? - Would experience in residential property investment be of any use in commercial property investment? - Will this book give me the answers to everything regarding commercial property? - Will it inspire me to enter the world of commercial property?
Or will it just confirm my thoughts about commercial property:
- That it is not for the little guy. - That it is only for the big business types - the Donald Trump’s of this world.
The book opened up a whole new world to me – the world of investing in commercial property. This is a very comprehensive book, packed full of vital, specific information from start to finish. I gained valuable information from every page – a lot of it which was obviously sourced from experienced, astute commercial investors.
Some of the interesting points I discovered were such things as:
- The Sale and Purchase stage of a commercial property deal seems a lot more technical. Detailed investigations are required prior to putting in an offer and during the conditional period. To rely on the information which has been supplied by the agent/vendor, or even the information in the current lease can be a mistake – you need to carry out detailed due diligence of the property, more so than residential property.
- Where as residential has the three L’s location, location, location, commercial has its own three L’s – lease, lessee, location. This indicates how much importance is placed on the lease.
- Whereas residential property has an inherent value, based on the area it is located, similar houses in that area combined with average rents in the area– the capital value of commercial property is largely dependent on its yield (or cap rate in commercial property terms).
- Details on the commercial property’s yield or cap rate, is not as straightforward as residential property – the cap rate of the same commercial property can vary depending on such things as the type of lessee, the type of lease, or the length of lease remaining on the property.
- A larger amount of money is required to invest in commercial property.
- Banks are not prepared to lend as much on commercial property
- Returns are better from commercial property, because the rental returns are net. This is because the Tenant is usually the one who pays for outgoings such as rates and insurance.
- Commercial property does not come under the Residential Tenancies Act. In a commercial lease, what you write down, agree on and sign, is binding.
- The basic strategies for buying well when purchasing commercial are the same as residential –
1. Buy under market value 1. Look for hidden value 2. Negotiate on price and terms 3. Can you change the use of the property to increase its value? 4. Make a cash offer 5. Look for free space that can be used
For someone like myself who has reasonable experience in residential property, but no experience at all in commercial property, I was impressed with the depth of vital, insightful information. I feel I have come away with a realistic picture of what is involved in purchasing a commercial property.
To my mind, commercial property is not something that you could just go out tomorrow and buy, without being found wanting. It requires a lot of work up front. Amongst other things – analysing the commercial property and the market in general and doing detailed due diligence to ensure the deal and the lease is what it is made out to be.
For anyone who has given serious consideration to commercial property and wants a no-nonsense realistic picture of what is involved, then this book is ideal. It will give you a deeper understanding of the pros, cons and tricks of commercial property and provide you with a good grounding on what is required to invest in the commercial property market. The Commercial Real Estate Investor’s Guide $49.95 is available through the Landlords Bookstore www.goodreturns.co.nz/books or call 0800 345 675.
