Why Commercial Beats Every Other Asset Class For Investing

Finance experts reckon more fortunes have been made through land than any other asset class available.

and they also say that commercial real estate is one of the most dynamic investment classes in the world. Commercial real estate is the only major asset class that produces high yields, significant equity buildup, can be efficiently leveraged for massive gains, has the security of a hard asset that you can see and touch
(intrinsic value regardless of an income stream), and provides some of the best tax advantages.

Anyway that’s what the “Experts” reckon but…

Just for a second take a look at this breakdown of some other common asset classes and their returns.

Screen Shot 2015-12-07 at 9.46.33 AMThis is not, of course, why I started investing in Commercial real estate – this sort of chart is really to theory-based for me. Let’s face it, if you like the hard asset classes like property then you probably are into the hard returns of cash profit right?

But just to really drive the point home I found this chart examining the typical returns on different asset classes which is kind of fascinating:

Screen Shot 2015-12-07 at 9.53.44 AMWhat is important to note from this chart is that it’s talking about the US markets, which from a stock market Point of view is way bigger than here in Australia (not that there are any obstacles any more from you investing in the US markets thanks to the internet)…

But even more important that return on a suburban office – is only a 7.8% return.

Frankly in the current climate and with interest rates what they are, 7% is the minimum I’d be paying attention to (unless there were some serious hidden upsides in a particular property.

t’s always been the case that the more money you have the higher returns you can typically get for it. If you have a million dollars cash you can get a decent rate for it. Got 40million banks will fight to get your business, and higher paying yields will come your way like flies on a dead fish.

But with commercial property you don’t need that kind of money to get amazing returns.

I regularly look for properties to show my students. I make videos which talk them through a bunch of different properties, what I liked about each one and what they need to consider with a property like this.

On any given month I find properties starting as low as 150,000 to 3m and show returns from 7% all the way up to 12% quite commonly.
In fact I recently found a low entry priced property which was showing 15% on the asking price and it was only around 225k to get into it.

What these charts don’t tell you is that because it’s a hard asset you can leverage it with bank money. You’d be hard put to be able to borrow large sums from the bank to invest in shares. Yes, I know it’s been done but the more unstable the market the more reluctant banks will be to lend on such a volatile asset.

The current market climate is generously giving us the opportunity to get into properties like this with an LVR of as low as 80%.
That means you only need to have 20% as a deposit for many properties under $1m (this is not the case with all lenders so it’s worth shopping around)

This makes for the possibility of huge leverage on your money.

That property I mentioned would only take 45k plus your legals and purchase costs to get into but would return over $33k a year (before loan repayments).

That’s an amazing return on the money you have to put into a deal in anyones book.

Now, I like cash in the bank for me to spend and play with as much as anyone – it’s why I am so passionate about commercial in the first place, but I want to show you one more thing which is well worth noting…

If you don’t spend all the money… If, by chance you use some of that money to pay out the loan faster… look what happens to your income and your returns over time.

Screen Shot 2015-12-07 at 10.29.00 AMI’ve flipped a lot of houses in my time, I’ve done over 100 different deals in the last 35 years, so I don;t mind doing a bit of trading (houses that is). But when it comes to commercial, I’m all about the long term, and you can see why from this chart.

The longer you keep a commercial property, the more it tends to pay you out.

This actually happens for 2 main reasons:
1- You pay out the loan so you get to keep more of the income once it’s paid out.
2- Annual increases are built into the lease…

When you consider that I’ve has some of my leases with the same tenant for over 20 years, these tenants are literally paying out then property for me while I provide a home for their business.

It’s a great place to be if you know what you are doing.

Find out more about commercial property by registering for my next free training webinar HERE

 

 

 

 

 

 

(thanks to realcrowd.com for the images)

Leave a Reply

Your email address will not be published. Required fields are marked *