10 Dec Residential vs Commercial – Jan Somers
In today’s show Jan Somers, the author of the book “More Wealth”, details her reasons for advising investors to look first at investing in residential property and not commercial property and she has a one word reason.
Kevin: Inside Jan Somers’ book “More Wealth,” chapter eight actually deals with a very interesting subject, and it’s a question we get asked from time to time: why should investors choose residential property rather than commercial property?
The author of that book joins me. Jan Somers, hello. How are you?
Jan: Hello, Kevin. How are you?
Kevin: Fantastic. Thank you, Jan.
Now, the reasons behind that?
Jan: Well, there’s probably just one word and that’s called risk.
Jan: Risk, just like the insurance ad, things become risky and they’re not worth doing. Now, it doesn’t mean to say you can’t make money out of investing in commercial property, but in my experience and my observations, it’s a lit bit hitandmiss – not a little bit, very much hit and miss.
Kevin: Do you need a different mindset for it, Jan?
Jan: Yes, you need a personality that can cope with the ups and downs of a commercial market.
Kevin: Yes. Because unless you get that tenant and property mix right, you can have some pretty long vacancy periods, can’t you?
Jan: Very long vacancies. In fact, I can pinpoint back in 1992 when I was traveling a lot and back and forwards to Brisbane and Sydney and Melbourne. I don’t think I’ve ever seen so many vacancy signs in my whole life. In fact, I was virtually paying people to come and rent their commercial premises in Melbourne.
Kevin: When you have to cut deals in commercial, as well, because you go into such long leases, these deals can really drag their heels for you for quite a number of years. It also impacts the value of the property, as well, Jan.
Jan: Well, exactly, because the value of a commercial property is based on its actual lease, so if you have a property that’s vacant for a long period of time, that certainly isn’t worth very much as far as the value of that property.
Kevin: Is it wise, do you think, Jan, to have a balanced mix, or do you think it’s either one or the other?
Jan: I tend to go for one or the other. I would probably put some even holiday units and apartments verging on that commercial rental frame, because it’s very much up and down, too, and depends very much on the economy. It doesn’t matter whether the economy is up or down; people need somewhere to live, but they don’t necessarily have a place to go to work.
Jan: I tend to stick to residential. I would have to admit, whenever I ventured any further, I can’t say exactly I’ve got my fingers burned, but then the pie hasn’t grown, either.
Kevin: Yes. Is there a better time to be looking at commercial rather than any other time, or does it depend on the marketplace?
Jan: Yes and yes. There is a better time, and it does depend on the marketplace; but I don’t know when that time is, and I doubt that anyone knows when that time is. I guess the time to buy is when the prices are down, and that’s when no one is renting.
If you could have bought those properties that I saw vacant in Melbourne back in 1992 and held on to them for a few years, you would have made significant gains. But, of course, no one wants to buy when the place is vacant, and of course, that’s the time to buy because the value of the property has been deflated so significantly.
Kevin: I wonder how many people actually are in business and decide that it would be a good idea to buy their premises, and it probably is for that reason.
Jan: I think it is. I think it is. It’s probably about the only time that it is a good time to buy property – when you have a business and you’re the owner of that premise, because you get control over it. You don’t get told what to do, what you can do, what the rent is.
People who do own their own land and buildings, when they have a business, it’s probably one of the few times I’d recommend that you do own commercial property.
Kevin: Indeed. It’s a great read. It’s called “More Wealth.” It covers a whole multitude of topics, and you can access that book by going to Jan’s website, somersoft.com.
Jan, always a pleasure talking to you. Thanks for your time.
Jan: My pleasure, Kevin.