Q&A: Commercial

Choc asks:
Hi Olly,
I have invested in small commercial and found it to be most satisfactory. My initial yield on one property was over 12%. Obviously that has fallen as property prices have risen. I have found tenants of commercial tend to be decisive and very easy to deal with. Contrast that with the more emotive nature of residential investing.

The banks are obviously less accomodating lending usually only up to 60% (sometimes higher in the boom but I wouldn’t expect that now). That doesn’t help if you are just starting out and deposit is an issue.

I read a very good article a number of years ago about property and the ripple effect. Notably the further you go from the centre (say Auckland city centre) the bigger the ripple. People will always desire to be near the city and this drives demand; reducing the downsize when they come.

The best advice I ever got was always buy something you would be prepared to live in, as one day you might have to.

Olly replies:
choc: The best way to get into better quality residential properties is to treat the cheaper homes as “stock” to buy and sell for straight profits in order to build up capital. Any rents collected on the way merely oils the wheels. You will likely be liable for tax- but so does any business that buys and sells for a profit.
Cheers, Olly

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