My Property Investment Tip #10
Residential not Commercial
Now commercial property is good. Really good. But it’s for the big boys and girls. It’s not suitable for people starting out in property. Let’s go through each.
Commercial
Pros:
– Higher rental yield (about 1.5 times resi)
– Tenant pays more outgoings (maintenance, rates etc)
– Longer tenancies (3 years+)
Cons:
– Less leverage. You can only borrow about 60% so you need a 40% deposit. Who’s going to win? The guy with 4 resi properties with 10%deposit/90% finance, or the guy with one commercial property with 40% deposit/60% finance?
– Longer vacancy. Awesome when you have a tenant, but very hard to find a tenant when it’s empty. Often the prolonged vacancy period wipes out any extra rental returns when averaged out over the years. But every day, there’s someone looking for a 4 bedroom house to rent.
Residential wins because you can buy more with the same money and you’ll always find a tenant.
When you can afford to buy the whole shopping centre, maybe then look a commercial. That way you can absorb the vacancy blows.
– Daimo