Investing In Commercial Property

Investing in commercial property is well beyond the financial means of most people. Few can afford the large sums of money involved in buying commercial real estate. For most of us our investment in real estate is limited to where we live - our home.

But unfortunately our home doesn't generate any income or cash flow. In fact it probably costs us money in maintenance, rates and upkeep.

Sure the financial incentive to invest in your own home is to offset the cost of renting or the capital gains you get when you sell your house if it's value has gone up.

Most financial advisors will tell you the best investment strategy is to pay off your home mortgage as quickly as possible to reduce your debt.

But what about after that if you want to invest in property? You have a choice - invest in another residential property or a commercial property.

Residential properties can often provide a good cash flow from rent, but there are associated hassles with getting good tenants, poor tenants trashing your property and the ongoing cost of maintenance. If you like playing the role of the landlord and being involved in all those activities great! But what if you want a hassle free commercial property professionally managed.

An increasingly popular investment amongst smaller investors and retirees is through syndicated property trusts. This is known as direct property investment where smaller investors buy small parcels of a larger property through a prospectus. These projects are managed and marketed by licensed property dealers.

The prospectus is lodged with the Australian Securities and Investment Commission and the property and syndicate is professionally managed.

As of December 1999 there were 77 Property Syndicates operating in Australia with more than $1.45 billion invested. Nearly 60 per cent of these investments use borrowed money, known as "gearing".

The benefits for investors buying into property syndicates is they can purchase relatively small parcels, for example as little as $10,000 and gain exposure to the commercial property market.

There is also the added benefit of the commercial property market often being in negative correlation with the share market so investors can spread their risk across their portfolio.

Another benefit provided is the regular income provided by syndicated property trusts, high yields and relatively low risk.

A typical breakdown of a property syndicate is the property management company buys a commercial building ranging from between $10 to $30 million and then they market this to around 300 individual investors who each have an equity subscription of between $40,000 and $50,000 each.

Simon Toovey is the Managing Director of Glenmont Properties a Perth-based property syndicate.

He says their main objective is to invest in properties that have quality tenants, long-term leases, strong returns and good potential for capital growth.

"The benefits of investing in a property syndicate are that it can enhance your lifestyle by providing a regular income, you can set and forget it," he said.

Toovey gives the example of a typical investor profile of someone looking for secure, regular income rather than capital growth.

'The most important aspects are location, lease, tenant and management. It's no good having a lease when the tenant holding that lease is a $2 company. Ideally the tenant is either a government department or a major, "blue chip" corporation," he said.

"Ultimately, it's all about income. The right property investment should provide you with more income, income that will enhance your lifestyle, either now or in the future."

Property syndicates may not be for all investors but they do provide an option for diversifying your investment portfolio.

Ten Tips for First Time Property Syndicate Investors

1. Set your objectives and work out a budget for how much you want to invest.

2. Understand the risk/reward tradeoff. The higher the return the higher the risk. Aim for syndicates with a return of between 8 and 10 per cent.

3. Understand the risks of property syndicates. These are a potentially unfavorable market when selling, rising interest rates, member liabilities and future potential tax changes.

4. Remember this is a long-term investment, usually around 7 years. It is "illiquid"; meaning you can't take your money out of the investment during this time.

5. Identify investment syndicates with quality property in a good location with potential for capital growth. Ask for a copy of any independent investment and ratings reports.

6. Analyze the lease arrangement. Ask how much rent or income will the property produce, what the income growth is and how long will this continue?

Thomas Murrell MBA CSP is an international business speaker, consultant and award-winning broadcaster. Media Motivators is his regular electronic magazine read by 7,000 professionals in 15 different countries.

You can subscribe by visiting http://www.8mmedia.com. Thomas can be contacted directly at +6189388 6888 and is available to speak to your conference, seminar or event. Visit Tom's blog at http://www.8mmedia.blogspot.com.

---

New or Old House?

A lot of buyers think that a new house is... Read More

The Psyche of The Seller and The Tenant Buyer

For those of you who were not psychology majors the... Read More

A Possible Bargain: Foreclosed Properties

In the superheated San Francisco Bay Area property market, foreclosed... Read More

Successful Property Letting And Management

Successful Property Letting And Management is not something that just... Read More

Real Estate Professional in the Palm of Your Hand

GETTING THE MOST FOR THE LEASE-TRACKING YOUR REAL ESTATEIf you... Read More

Old House? New House? Weighing Your Options

Maybe it has something to do with a childhood home... Read More

Commercial Real Estate Industry - Is the Condo Craze Over, or Just Gaining Steam

Over the last two years there has been so much... Read More

Are You Really A Twenty First Century Investor

Today's residential real estate market for investors has become very... Read More

A Few Easy Ways To Take The Headache Out Of Moving

Moving from one house to another is always a challenge,... Read More

Create a Great Webpage to Sell Your Home

The majority of people in the UK who are looking... Read More

10 Important Tips to Successful Real Estate Investing

When it comes to investing, everybody has certain goals and... Read More

Probate & Obituary Marketing

I start my marketing with obituaries followed with probate filings... Read More

Apartment Loan 101

So you're interested in going into business as a property... Read More

The 5 Biggest Mistakes Made When Getting A Business Appraised

Most business owners will, at some point, want or need... Read More

Creative Real Estate Investing

With a job that paid $3.40 an hour, I saved... Read More

How to Eliminate Risk in Real Estate Investment

Avoid 12 Common Mistakes Made by Novice Investors and Ensure... Read More

Renting Versus Buying A Home

Renters are often in a quandary as to whether it... Read More

Selling Your Home Yourself ? Pricing It Appropriately

When you're selling your own property, whether it's a house,... Read More

Selling by Owner Escrow or Closing Checklist

Home sellers should keep on top of their pending sale;... Read More

Should You Sell Before the Housing Bubble Pops

For the past several years housing prices have risen dramatically.... Read More

Peace of Mind for Home Inspections: Choose the Right Inspector!

As sure as the spring flows at The Fountain of... Read More

First-time Home Buyers - 100% Home Loans

There is an increasing trend in South Africa that is... Read More

Make Your House Earn Its Keep

Did you realise that there is a lot you can... Read More

NAR® Broker Will Swear It ? Real Pro? Agents Share It ? FSBO Truth

For posting the "Truth" on your website, some FSBO's will... Read More

Home Selling: How To Set The Right Asking Price

Many homes remain unsold for a long time because they're... Read More

How to Build Your Dream Home

Building your dream home is a process that takes some... Read More

Internet Battleground for Future of Residential Real Estate

Real estate agents are gearing up to face the biggest... Read More

Real Estate Investments

Real estate investments come through a variety of different options.... Read More

Real Estate Bankruptcy

Although real estate bankruptcy cases no longer dominate the bankruptcy... Read More

Seller Objections To Lease Purchase

A large percentage of the mail we receive are from... Read More

Real Estate Investing - Basis Explained

Our complex IRS code requires that your, as a real... Read More

Oh No! Something has Happened in Florida

The Florida housing market has attracted many foreigners to invest... Read More

The UK has Gone Property TV Show Crazy!

The UK has gone property TV crazy. There are now... Read More