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6 commercial property myths (which stop people investing)

Categories: Commercial, Investments

Investment advice that begins with “be careful”, “watch out” or “I heard it’s not a good idea” is one person’s way to help you avoid a bad financial experience. Humans, after all, are petrified of making mistakes, so we look for signs of trouble everywhere.

But if fear keeps you on the side lines, you can miss out on great investment opportunities.

So, to help separate fact from fiction, we expose 6 myths about commercial property which can stop people from investing.

MYTH #1 – Commercial property is way too risky

All investments carry risk, but some less than you think.

Commercial property is secured behind the rental income of your tenant. So, if rent is coming in on time and you’ve strong reason to believe it will continue to, then stress less.

Larger investments might house ASX-listed and nationally recognised businesses, meaning you’re much less likely to see your tenant go bust – or much more likely to be compensated with lost rental income if they do.

Many successful investors will agree that commercial property has an important place in a balanced portfolio.

Leases are typically five to seven years and can be secured up to 15 years or longer. If you know how to mitigate against risk, find a quality tenant and weather peaks and troughs of the property cycle, you could have peace of mind for over a decade.

MYTH #2 – To see any reward, I’ll need to keep my money invested for a long time

Like a toddler eager to walk, Gen Y is becoming infamous for impatience. So, to keep the next generation of investors calm, know that you’ll find it entirely possible for commercial property to achieve rapid capital growth.

Typically, property cycles occur over a seven to 10-year period. But sometimes things can happen spectacularly quick if you know how to add value.

In November 2017, we sold Tuggerah Supa Centre for $3,260,000 more than we paid for it. That’s a great result, thanks to reinvigorating the NSW asset with brand new signage and a much better façade to make the asset ‘pop’.

But what is exceptional is that we bought the property in June 2016. Our investors earnt a 40% net return in 18 months. That’s a result sure to satisfy most ‘I-want-it-now’ investor appetites.

MYTH #3 – I need years in the commercial property game to access good information

Researching the property market in 2018 means premium information is just a few clicks away.

CoreLogic, and a web of other online property listings grab information from hundreds of reputable sources, so you don’t have to. The Average Joe with an internet connection is arguably armed with more data than any realtor pre-World Wide Web.

It does take experience to analyse this data effectively and allow you to pick where the market is headed. Being overwhelmed or confused might mean it’s wise to contact an expert.

If you ask a successful investor whether the internet is the best source of good property information, you’ll probably hear laughs. But after asking your apparently silly question, maybe ask them how the market is performing. Because hearing first-hand advice from professionals is essential to finding an accurate representation of industry and market trends. Good commercial property information doesn’t take years to find, it takes building relationships with those in the know.

MYTH #4 – It’s incredibly tough to get a commercial loan approved

There are many things a bank will investigate before approving your commercial property loan: Your credit history, how much of your own money is going into the purchase, what their appetite is like for your investment, and so on.

But a major item going under a banker’s microscope is the tenancy schedule.

So, purchasing an asset with quality tenants inside it and a long lease tenure will play a significant role in your finance approval. Stick to strong property fundamentals to put you in good stead with your bank, and you’ll find they’ll want to support your investment.

MYTH #5 – Commercial loan interest rates are way higher than residential rates

When you’re transacting millions of dollars in commercial property each year, you’ll be able to make friends with the many industry professionals you’ll meet on your investment journey. And typically, friends help each other. So, build a relationship with one of the best buddies you can have – the bank.

When applying for a seven-digit commercial property loan, you’ll discuss the loan terms and interest rate with your own dedicated Relationship Manager. They’re a real person, with a real personality and a real ability to listen why the bank should, say, reduce the interest margin on your loan.

The myth-buster here is that interest rates can be discounted in commercial property if you can build good relationships with your finance partner.

‘A seven-digit loan?’ you say. ‘How do I get the money to buy a property needing a loan of that size?’

MYTH #6 – Commercial property is too expensive to invest in

It’s not. Investing in commercial property can require the same amount of money as some capital cities’ median residential property.

If you’re used to simple arithmetic, you might tilt your head at this claim: How can entry into a multi-million-dollar commercial property compare to a residential property?

The answer lies in commercial property syndicates.

A commercial property syndicate will pool together the funds of multiple investors, so these people can purchase an asset of bigger size, better quality and greater value than otherwise possible if investing on their own. Many syndicates require you invest at least around $200,000 – that’s the same amount you would need for a deposit on a million-dollar residential property.

Syndicates will also suit you if you’re someone without a large property network.

In commercial real estate investment, your relationships are priceless. You’ll want to know bankers, valuers, property managers and business owners – and, so your return outweighs your risk, you’ll want to know them well. A good commercial property investment firm will take of this for you.

Now that you’ve got your facts right, you’re a step closer to deciding if commercial property investment is right for you. To learn more about investing in commercial real estate and how to join one of our syndicates, contact Properties & Pathways today.