Episode 23

Commercial v Residential Property; the pros and cons if you’re considering investing

Welcome to Finance and Fury

In today’s episode we’re talking about property – Commercial vs Residential.

It’s often a question people ask when they’re looking to start investing in property and considering which is the best type to get in to.

  • What is best to buy? Residential or commercial?
  • What do you want to achieve?
  • They aren’t the same beast – Whilst they’re both ‘property’ they aren’t really the same thing and behave quite differently

 

Residential Property

  • Homes or apartments
  • Rent to individuals

 

Commercial property

  • Three different property types
    1. Office
    2. Retail
    3. Industrial
  • Rent to businesses

 

Commercial property to residential

  1. Pros
    • Costs – Commercial can have lower costs
      • Upfront – Technically cheaper per square meter than residential
      • Ongoing – Tenants cop some of the costs (maintenance, etc.)
    • Higher Rental Yields
      • 8-12% on yields
      • Residential has about 3-4% on yield
    • Long leases
      • Leases for 3-5 years are more common. Can go to 10 years.
      • Provides certainty
  2. Cons
    • Lower capital growth
      • Supply and demand: If populations are growing (immigration) – prices go up
      • Businesses aren’t growing in number at the same rate as residential
    • Higher risk of vacancy – Often untenanted for long periods
      • Got to have enough other cashflow to cover any costs on the property.
    • Resale challenges
      • Again, supply and demand
      • Important to select property that will be demanded in the future – Rise of share office blocks
    • Economic changes – Business don’t do well when the market is experiencing an overall decrease in demand.
      • Residential property – you only have to look at individual demand – Places people want to live
      • Commercial – Two-fold – Individuals need to demand business, and then business need to demand property
    • Lending – lenders require 30%-50% deposits for property

 

Relationship for supply and demand

  1. Fundamental driver for property growth – demand compared to supply
  2. Residential demand is driven primarily by population growth
  3. commercial demand is driven by both population growth and economic factors.
    • Often in the ‘not so nice’ parts of town

 

It is important to understand these growth factors when deciding where and when to investment.

  • Risks
    • No growth – Demand to buy doesn’t do up
    • No income – Nobody wants to rent

 

Commercial – Works if:

  • Low maintenance
  • Desired part of town for business to operate
  • Strong cashflows

 

Residential – Higher capital growth – Plus more leverage

 

Summary

  1. Residential – Good for long term growth – Leverage helps
  2. Commercial – Good for incomes – But has its risks

Understanding foreign currency

Episode 31 Understanding foreign currency Welcome to Finance and Fury. Before I start I want to say a massive ‘Thank you’ to our listeners. We cracked 150k downloads in the first 6 months which is phenomenal. Also, thank you to everyone who has taken up the course – I...

How to analyse share markets by treating them as a complex system

Welcome to Finance and Fury Series on Share markets as complex systems – a different way of thinking about them – This episode, discuss some basics of shares and introduce complexity theory – Nonlinear, Emergence, Spontaneous order, Adaption, Feedback loops Shares -...

Are the risks from investments in structured products worth their potential returns?

Welcome to Finance and Fury, the Say What Wednesday edition. This week the question comes from Mina. “I would love to get your view on Structured products like the ones being offered by sequoia. Is the risk worth the return?” Great question – thanks Mina - this...

The News Media Bargaining Code – the medias way of reclaiming their informational top spot on digital platforms

Welcome to Finance and Fury, the Say What Wednesday edition. This episode is a bit of a special episode –looking at some legislation in Australia that is currently underway – Has to do with the Government stepping in for the Monetisation of the news – which could...

Younger than 35 are experiencing low to negative income growth – but there are real ways of actually getting around it

Episode 27 Younger than 35 are experiencing low to negative income growth - but there are real ways of actually getting around it Today we’re talking about a news article that came out highlighting that young Australians’ are experiencing either zero, or negative...

Crony capitalism and Modern Monetary Theory in action!

Welcome to Finance and Fury, the Furious Friday edition. Today we’re looking at Modern Monetary Theory in action. The first stage, how this is going to be practically done, involves the merging of the central banks and Government Treasury. We’ll also look at the...

Say What Wednesday: Why is it unlikely the world economy will move away from Oil?

Welcome to Finance and Fury, The Say What Wednesday edition, where we answer your questions. Today we have a question from Nick - Watching the Leonardo Di Caprio documentary about global warming, which touched on how the large oil corporations used bribes to corrupt...

Rome wasn’t ruined in a day! What happens when the population becomes reliant on the government that has complete control over the currency?

I love history – valuable lessons. When looking at us to those in the past - Culturally we are different, but biologically we are not. If any one of us was put back in time to grow up in past civilisations, we would be no different to the local people in that time...

How does corporate debt fuel market bubbles?

Welcome to Finance and Fury, The Furious Friday Edition Today – want to look at how much Corporate debt has been fuelling the top end of the share markets growth – signs that if liquidity is withdrawn, companies and markets collapse   Last FF ep – went through...

Savvy Super: Tips on what you can do now with little effort or sacrifice to maximise your future

Episode 14 Savvy Super: Tips on what you can do now with little effort or sacrifice to maximise your future Have your Super set up – do yourself a favour! What will kill your retirement? Not looking at your super now. Would you trade 15 minutes now for $350,000 in 30...

Pin It on Pinterest

Share This