Now is the time to get into a commercial property!

Australian papers are full of articles about the ‘booming’ residential property market.

The ‘booming’ residential market across every major capital city in the country continues and does look like stopping. The boom in housing prices is set to continue for another 12 months. Some predict at least another 5-10% will be added to mean housing prices.

This is great if you own a house, not great if you are trying to buy one. But the strong growth in housing prices is also having an impact on commercial property prices.

You see, investors are fairly simple beings. Each is looking for a return on their money.

Let's compare residential property with commercial property. Residential returns, or yields to the industry types are 2.9% – Commercial returns are on average around 6%.Screen Shot 2015-10-12 at 10.11.13 am

You don’t have to be Albert Einstein to do the math on that. My students are getting properties that are closer to 9% because they know what to look for and how to generate those returns.

Investors who were previously only looking at residential investment are now looking at commercial property as a viable alternative.

This is because the return on investment is much better and the quality of available properties is much greater. The increase in residential property has caused many properties to become overvalued.

In the event of a decrease in housing prices, the yields will further reducing making commercial property more attractive. You should have picked up the benefits of commercial property from my previous articles.

But if you didn’t, here is my ‘red hot’ tip!

We are purchasing commercial property for cash flow. We are not purchasing with a primary focus on capital gain. It is very unlikely a commercial property will increase 10% each QTR which can happen to residential property if the property cycle is in the right place.
… But there are a ton of strategies that I teach my students to grow equity in the property very quickly regardless of where the property market is cycling.

The benefit of commercial property is the constant cash flow provided to the investor. The cash flows are also generally pegged to CPI increasing the amount rent each year.

Our goal and fundamental job as a commercial property investor is to build a portfolio of assets that act like an ATM.

We want to find as many as possible that spit out cash and put you in a position to retire on the income.

If I go back to the first sentence of this post ‘why is now a good time’. Now is a good time become other novice investors are seeing the benefits of commercial property.

The financial maths is become more and more real residential property increase in value and the gap widens. As the gap increases again it will become even more competitive to find good commercial properties.

So now is the time to start actively searching for that elusive property.

The second reason that the right time is now, is financing.

If you are looking for a loan from an Australian retail bank, commercial property is more in favour. For years and years, the ANZ, CBA, NAB have been pumping out residential mortgages.

These banks now have a huge exposure to the increase boom in residential values. These banks also have increased exposure to mortgages defaulting as wages in Australia have now increased in proportion to residential house prices.

On the other hand, there is an under exposure to commercial properties. As a good investor, you would all know about risk. It is import to diversify your portfolio.

The banks are no different. Therefore, they are looking at people who are borrowing to invest in cash flow positive property rather than residential property with increase capital value.

As more people start investing in commercial property there becomes more demand. More demand with no increase supply causes capital values to increase.

This is only good news for investors.

Now is the time to get ahead of the curve.

Invest now before demand increases and while banks have an appetite for commercial property. The conditions are right for you to make an investment into a positive cash flow commercial property.

Best of luck.