$35,000 Positive Cashflow From Just One Property?
Why are many residential property investors starting to look at commercial property? Well, there are many reasons, but one of them is obviously the higher yields that are possible.
Why are many residential property investors starting to look at commercial property?
Well, there are many reasons, but one of them is obviously the higher yields that are possible.
Yields in residential property are now very low – and this is punishing investors net cashflow on their portfolio.
This table from Business Insider makes this clear.
The combined capital city average yield is just 3.32% - even with record low-interest rates, that’s low.
Combined with the strict new APRA influenced bank lending limits, and you have a challenging situation for investors.
Whereas, commercial property yields range from 5% to as high as 11% for regional properties.
For example, check out this recent commercial property investment by a Melbourne investor.
Based on the rental income, she’ll get over $35,000 per year passive income from this property.
That’s more than $3,000 per month positive cashflow.
The cost of the property? Just over $700,000.
Now, if you buy 3 properties giving you $35,000 each that’s $105,000 per year.
That’s enough to potentially replace many people’s income – or at least take a good bite out of it.
The beauty of this deal is, it’s got a brand new 5-year lease…with 3% rental income increases locked in each year. So this is as close as you can get to ‘set and forget’ cashflow.
Now, here’s another example. Look at this office building.
It’s not winning any architectural awards, right?
And yet, the buyer of this property LOVE’s this ugly office block.
Why? Because he purchased it recently for $660,000.
And, based on the rental income, he’ll get a net positive cashflow of $25,000 a year – that’s over $2,000 a month.
Not only that, he’s also got the potential to put apartments on top of it (it’s across the road from the beach).
And the tenants just signed up to a new 3-year lease, with a 4% rental increase per year….so it’s ‘set and forget’ passive income.
But what about capital gains?
Well, there are some commercial markets that give very strong capital growth – for example, the Sydney office market is on track to outperform residential property in Sydney this year.
However, it’s also possible to “manufacture” big equity upsides in your deals.
For example, I bought an office in this building in North Sydney.
I spent $3,000 putting up a ‘Gyprock’ plaster wall in an office to divide it into two smaller offices.
This allowed me to have two tenants instead of one - and increased her rent by $12,000 per year.
This rental increase turn increased the value of the property by about $200,000.
Better still this is a highly positive cashflow property - in a major capital city. Now, some people understandably think commercial property is too risky.
Or the vacancy risk is too high.
Or they are too expensive.
Or the banks will only lend you 70% on them.
However, while these beliefs are common, they are certainly not true in all cases.
That’s because if you have the right knowledge, vacancy risks can be minimised, commercial properties for as little as $150,000 can be found.
And, it’s possible to get loans of up to 80% of the purchase price of a commercial property in today’s market.
So, as these examples show, while commercial property may not be for everyone, for investors who want to boost their cashflow, it’s certainly an option to consider.
To find out more about investing in commercial property meet “Australia’s Queen of Cashflow” Helen Tarrant at her free event: www.freedom360.com.au/income