Monday, December 18, 2006

Investing: Commercial Property

Investing in commercial property is well beyond the financial agency of most people. Few tin afford the large sums of money of money involved in purchasing commercial existent estate. For most of us our investing in existent estate is limited to where we dwell - our home.

But unfortunately our home doesn't generate any income or cash flow. In fact it probably costs us money in maintenance, rates and upkeep.

Sure the financial inducement to put in your ain home is to offset the cost of renting or the capital additions you get when you sell your house if it's value have gone up.

Most financial advisors will state you the best investing strategy is to pay off your home mortgage as quickly as possible to reduce your debt.

But what about after that if you desire to put in property? You have got a pick - put in another residential property or a commercial property.

Residential places can often supply a good cash flow from rent, but there are associated fusses with getting good tenants, poor tenants trashing your property and the in progress cost of maintenance. If you like playing the function of the landlord and being involved in all those activities great! But what if you desire a fuss free commercial property professionally managed.

An increasingly popular investing amongst smaller investors and people is through syndicated property trusts. This is known as direct property investing where smaller investors purchase small packages of a larger property through a prospectus. These undertakings are managed and marketed by accredited property dealers.

The course catalog is lodged with the Australian Securities and Investing Committee and the property and mob is professionally managed.

As of December 1999 there were 77 Property Syndicates operating in Commonwealth Of Australia with more than than $1.45 billion invested. Nearly 60 per cent of these investings utilize borrowed money, known as "gearing".

The benefits for investors buying into property mobs is they can purchase relatively small parcels, for illustration as small as $10,000 and addition exposure to the commercial property market.

There is also the added benefit of the commercial property market often being in negative correlativity with the share market so investors can distribute their hazard across their portfolio.

Another benefit provided is the regular income provided by syndicated property trusts, high outputs and relatively low risk.

A typical dislocation of a property mob is the property management company purchases a commercial edifice ranging from between $10 to $30 million and then they market this to around 300 person investors who each have got got an equity subscription of between $40,000 and $50,000 each.

Simon Toovey is the Managing Director of Glenmont Properties a Perth-based property syndicate.

He states their chief aim is to put in places that have quality tenants, long-term leases, strong tax returns and good potentiality for capital growth.

"The benefits of investment in a property mob are that it can heighten your lifestyle by providing a regular income, you can put and forget it," he said.

Toovey gives the illustration of a typical investor profile of person looking for secure, regular income rather than capital growth.

'The most of import facets are location, lease, tenant and management. It's no good having a rental when the tenant retention that rental is a $2 company. Ideally the tenant is either a authorities section or a major, "blue chip" corporation," he said.

"Ultimately, it's all about income. The right property investing should supply you with more than income, income that volition heighten your lifestyle, either now or in the future."

Property mobs may not be for all investors but they make supply an option for diversifying your investing portfolio.

Ten Tips for First Time Property Syndicate Investors

1. Set your aims and work out a budget for how much you desire to invest.

2. Understand the risk/reward tradeoff. The higher the tax return the higher the risk. Purpose for mobs with a tax return of between 8 and 10 per cent.

3. Understand the hazards of property syndicates. These are a potentially unfavourable market when selling, rising interest rates, member liabilities and future potentiality tax changes.

4. Remember this is a long-term investment, usually around 7 years. It is "illiquid"; significance you can't take your money out of the investing during this time.

5. Identify investing mobs with quality property in a good location with possible for capital growth. Ask for a transcript of any independent investing and evaluations reports.

6. Analyze the rental arrangement. Ask how much rent or income volition the property produce, what the income growing is and how long will this continue?

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