{"id":10353,"date":"2017-01-31T01:00:12","date_gmt":"2017-01-30T14:00:12","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=10353"},"modified":"2017-01-31T01:00:12","modified_gmt":"2017-01-30T14:00:12","slug":"broarden-your-investment-horizon-michael-yardney","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/broarden-your-investment-horizon-michael-yardney\/","title":{"rendered":"Broarden your investment horizon – Michael Yardney"},"content":{"rendered":"

 
\nHave you ever been tempted to broaden your investment horizons by getting into the commercial property?
\nWell anyone who has done it will tell you it is vastly different from investing in residential property.\u00a0Michael Yardney<\/strong> gives us the lowdown on that and tells us about some of his personal experiences.
\n <\/p>\n

Transcript:<\/strong><\/h4>\n

Kevin:\u00a0 <\/b>With the residential markets slowing down or showing signs of slowing down, many people wonder if this could be a time to switch to commercial property. There are some differences. Let\u2019s find out exactly what they are. Michael Yardney joins me.
\nHi, Michael.
\nMichael:\u00a0 <\/b>Hi, Kevin.
\nKevin:\u00a0 <\/b>You\u2019ve had experience with this, not only on behalf of the people you work with but personally, the differences between commercial and residential investment, Michael.
\nMichael:\u00a0 <\/b>In my mind, they\u2019re very, very different investments, and while I can understand why some people are tempted to get into commercial property, I\u2019d be suggesting to leave it until later on in your investment career. It\u2019s really more an investment for the big boys.
\nWhat are commercial properties? There\u2019s a range. There are shops (which we call retail), factories and warehouses (which we call industrial), and offices (which we tend to call commercial). The big difference is that they\u2019re yield-based investments.
\nKevin:\u00a0 <\/b>Does it take a different type of investor to become involved in those, Michael?
\nMichael:\u00a0 <\/b>It depends in which stage of your investment career you are and what your investment philosophy is. To me, residential real estate is a high growth but low yield investment, and as I started to say, commercial is really a lower growth investment (because the increase of the values of commercial properties tends to be pegged to the CPI) <\/b>but they have a higher yield.
\nSome people say, \u201cIf the return is the same overall, why not go for the one with the high yield that gives me cash flow?\u201d The big thing, Kevin, is many beginning investors need to grow their asset base. And while yields are taxed, capital growth isn\u2019t, so it\u2019s much easier to build a big asset base using residential property, and then later in life, transitioning into the commercial field.
\nKevin:\u00a0 <\/b>If that\u2019s the case, Michael, then why do some people consider getting involved in commercial property?
\nMichael:\u00a0 <\/b>I guess they\u2019ve noticed that institutional property investors as well as those investors of the BRW Rich 200 list own commercial properties, and they wonder why. They see them getting high yields; it seems a bit attractive. They don\u2019t understand the downsides, Kevin.
\nKevin:\u00a0 <\/b>Michael, <\/b>I wonder if you would be kind enough to spend a minute or two and take us through what you see as the fundamental differences between commercial and residential investment.
\nMichael:\u00a0 <\/b>Sure, I\u2019m happy to. I got involved in commercial real estate in the late 1970s when I bought my first factories, and. I did a lot of commercial and industrial development in the late 1980s. Great properties; some of them I still own.
\nInterestingly, since then \u2013 and that\u2019s 25 or 30 years \u2013 those properties have only doubled in value. They\u2019ve had good rental return, they\u2019ve not been vacant long, they\u2019ve had great tenants, but because they only go up much more slowly, they\u2019ve only doubled in value.
\nHaving said that, a lot of the residential real estate I own has doubled in value in eight or ten years, sometimes even five or six years if I\u2019ve done some developments. That means my wealth has grown because the rents have grown proportionally, as well.
\nSo, it\u2019s something I\u2019d be recommending people consider when they\u2019re at a different stage of their life, or maybe in their superfund where they\u2019re looking for more cash flow. I know I haven\u2019t answered your question about the big differences, but I thought that was an important place to start.
\nKevin:\u00a0 <\/b>It is indeed. You said that commercial properties tend to yield higher returns.
\nMichael:\u00a0 <\/b>Yes, they do. Now, it depends upon the lease. The more secure the lease\u2026 If you have a lease to Officeworks for 15 years, you actually are prepared to accept a lower return than if you have a fish and chip shop leased to mom and dad.
\nFirst of all, if you want to get involved in commercial real estate, to get the benefits of the security of the long leases, you normally need much deeper pockets \u2013 firstly, because probably unless you\u2019re spending $2 million or $3 million, in my mind you\u2019re not buying an A-class commercial property; you\u2019re buying secondary properties \u2013 and you shouldn\u2019t do that.
\nThe other thing, Kevin, is banks will often only lend you maybe 60%, sometimes 70% of the value of the property. You need more deposit because they have lower loan-to-value ratios, and also many banks charge you a slightly higher interest rate.
\nOne of the big differences is that you need much deeper pockets and you need to be looking to get cash flow out of them.
\nKevin:\u00a0 <\/b>Yes, we can see there are some fundamental differences there. I guess like anything, Michael, we should always take advice on this before you take those kinds of steps.
\nMichael:\u00a0 <\/b>This even more so. Even the leases are complicated, Kevin, so you don\u2019t get the normal property manager to do those. You need a solicitor\u2019s advice for this. The due diligence is significantly different, and commercial real estate is very much more cyclical. It depends a lot more upon how the economy is going and what happens with interest rates, so a lot more homework and due diligence.
\nKevin:\u00a0 <\/b>Michael Yardney from Metropole Property Strategists. Michael, thank you for your time and your insight. I appreciate it.
\nMichael:<\/b>\u00a0 My pleasure, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":"

  Have you ever been tempted to broaden your investment horizons by getting into the commercial property? Well anyone who has done it will tell you it is vastly different from investing in residential property.\u00a0Michael Yardney gives us the lowdown on that and tells us…<\/p>\n","protected":false},"author":176692471,"featured_media":9130,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[32,10,11,13,36,17,25,27],"tags":[101],"class_list":["post-10353","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buying-a-property-topic","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-property-investment-topic","category-property-investment","category-sponsored-channels","category-trends-topic","tag-podcast"],"yoast_head":"\nBroarden your investment horizon - Michael Yardney - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/broarden-your-investment-horizon-michael-yardney\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Broarden your investment horizon - Michael Yardney - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"  Have you ever been tempted to broaden your investment horizons by getting into the commercial property? 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