Should I invest in stocks or keep invested in commercial property?

[Value Collector]

VC

Whats your thoughts on finding stock which crashes very quickly
Provided its a solid stock just buy it?

I don't just buy things because they have gone down, I buy them based on valuation which takes into account the quality of the company and its outlook etc.

But yes if the stock of a truly solid company were to crash, I would look hard at it to try and see the reason for the crash, and if I think the market opinion is flawed or short sighted I might buy.

Taken a a whole, the ASX200 as a group is a solid company, But not everyone has the skills to value the index, So for these people the best strategy is to just dollar cost average in over time, and ignore the media, just equal amounts regularly whether the predictions are doom or boom, equal amounts regularly.

Is it a matter of what made it crash lower or in your view doesn't that matter?

Of course the reason of the crash is important, a lot of crashes are justified, however many are also over done or general in nature, and sometimes the market is just wrong.

To me the goal of investing is to build up an ownership interest in the local and global economy large enough that the dividends and capital that it throws off can support me, and therefore I no longer rely on contributing your labour to the economy.

This ownership interest in most cases needs to be purchased, and like anything the lower the price the more you can buy, So when the market goes down, I will be looking harder for potential buys.

I would suggest if its clear that it was an outside influence like the GFC that's nirvana!

A general stock market down turn such as the GFC, is nirvana, being able to buy important companies for a fraction of their true value is a pathway to wealth creation.

 

[wayneL]

Just necromancing this thread...

And let me be the first to admit that I know zip about commercial property investing; but circumstances have given me cause to evaluate some of these.

If I can put this crudely, it seems to me that direct commercial property investment, sux dogs bollox when compared to some of the REITs available on the ASX... all things considered.

Of particular concern to me, in those I've evaluated thus far, is the complete lack of risk premium.

Maybe discuss this further with regards to the current environment?

Over to the experts....

 

[divs4ever]

Just necromancing this thread...

And let me be the first to admit that I know zip about commercial property investing; but circumstances have given me cause to evaluate some of these.

If I can put this crudely, it seems to me that direct commercial property investment, sux dogs bollox when compared to some of the REITs available on the ASX... all things considered.

Of particular concern to me, in those I've evaluated thus far, is the complete lack of risk premium.

Maybe discuss this further with regards to the current environment?

Over to the experts....

am no expert in this area , but there is plenty of complexity to discuss here , REITs can allow diversification of niches without large investments in each asset BUT REITs normally use leverage to help work their magic ( as do some direct investors )

direct investment works best if you know commercial property well ( especially the asset class you are investing in ) so you have plenty of warning when tenants are struggling ( and you don't need to rely on analysts and the news

interest rates are a big factor now , but they can also bring bargains as the over-leveraged rush to lighten the debt load

just like stocks one big thing to avoid is DON'T be a forced seller .. the sharks and vultures can be ruthless ( and can wait to buy from the receivers most times )

 

[farmerge]

am no expert in this area , but there is plenty of complexity to discuss here , REITs can allow diversification of niches without large investments in each asset BUT REITs normally use leverage to help work their magic ( as do some direct investors )

direct investment works best if you know commercial property well ( especially the asset class you are investing in ) so you have plenty of warning when tenants are struggling ( and you don't need to rely on analysts and the news

interest rates are a big factor now , but they can also bring bargains as the over-leveraged rush to lighten the debt load

just like stocks one big thing to avoid is DON'T be a forced seller .. the sharks and vultures can be ruthless ( and can wait to buy from the receivers most times )

Just finished a largish job for a recently retired couple. Apart from the SMSF which thy don't touch, they have a commercial property which generates a sizeable income for them. I was told they don't pay anything towards the upkeep of the property, the tennants are the responsible entities, even the rates are met by them. Win, win as far as they are concerned.

 

[qldfrog]

Just finished a largish job for a recently retired couple. Apart from the SMSF which thy don't touch, they have a commercial property which generates a sizeable income for them. I was told they don't pay anything towards the upkeep of the property, the tennants are the responsible entities, even the rates are met by them. Win, win as far as they are concerned.

Until the tenant leaves or default then you become one of these for lease sign.
A restaurant in our town collapsed with Covid lockdown, still empty,owner still paying rates water power and loan...3y now....took me a whole year to offload a small industrial warehouse .,and we were not officially in recession.
But yes 15% returns when all was going well...
And you are deeply involved..phone calls, run to check fix door etc..not worth the risk and hassle imho

 

[Value Collector]

Just finished a largish job for a recently retired couple. Apart from the SMSF which thy don't touch, they have a commercial property which generates a sizeable income for them. I was told they don't pay anything towards the upkeep of the property, the tennants are the responsible entities, even the rates are met by them. Win, win as far as they are concerned.

That is called a “triple net lease”

 

[wayneL]

I haven't looked at very many at all, but I haven't seen anything with anything remotely close to 15% @qldfrog. More like 5-6% net.

This has resulted in my question here as it seemed a poor gross return for risk assumed.

 

[Value Collector]

I haven't looked at very many at all, but I haven't seen anything with anything remotely close to 15% @qldfrog. More like 5-6% net.

This has resulted in my question here as it seemed a poor gross return for risk assumed.

I think owning a single second or third tier asset is is risky.

However, I think owning a portfolio of diversified high quality realestate is very low risk.

Earning 5-6% on a very low risk portfolio, where over time the capital value should atleast be protected from inflation and maybe produce capital gains in excess of inflation is attractive when compared to something like bonds.

If you want to look at a reit that I like, with the type of portfolio I am talking check out CLW, it’s not going to be a 10 bagger, but it pays a decent stable 3 monthly dividend, and the capital I have deployed there should produce a decent capital gain over time in excess of inflation.

Take a look at one of their presentation, it has a table that lays out the leases details of each property they own, they are great properties, diversified and a lot are triple net

 

[farmerge]

That is called a “triple net lease”

These people have had the property for some years and with the same tennant so they are quite positive no problems going into the future.

 

[wayneL]

I think owning a single second or third tier asset is is risky.

However, I think owning a portfolio of diversified high quality realestate is very low risk.

Earning 5-6% on a very low risk portfolio, where over time the capital value should atleast be protected from inflation and maybe produce capital gains in excess of inflation is attractive when compared to something like bonds.

If you want to look at a reit that I like, with the type of portfolio I am talking check out CLW, it’s not going to be a 10 bagger, but it pays a decent stable 3 monthly dividend, and the capital I have deployed there should produce a decent capital gain over time in excess of inflation.

Take a look at one of their presentation, it has a table that lays out the leases details of each property they own, they are great properties, diversified and a lot are triple net

Thanks for that, checking out CLW. ?

Of interest is p/bv and payout ratio, which I think should be contrasted to direct investment.

Disclaimer: being primarily a technical trader, not super au fait with fundamentals.

 

[Value Collector]

Thanks for that, checking out CLW. ?

Of interest is p/bv and payout ratio, which I think should be contrasted to direct investment.

Disclaimer: being primarily a technical trader, not super au fait with fundamentals.

Yes, at the moment CLW is trading below book value, so essentially if looking to to gain exposure to some real estate, it’s cheaper to by CLW than it is to buy directly.

That’s basically my angle on this one, eg earning a dividend of around 6%, that is supported by a large portfolio of long leases with built in rental increases, and then eventually taking a capital gain when the share price makes the inevitable rise back towards book value (book value should also increase over time as rents increase over the years)

 

[Telamelo]

Yes, at the moment CLW is trading below book value, so essentially if looking to to gain exposure to some real estate, it’s cheaper to by CLW than it is to buy directly.

That’s basically my angle on this one, eg earning a dividend of around 6%, that is supported by a large portfolio of long leases with built in rental increases, and then eventually taking a capital gain when the share price makes the inevitable rise back towards book value (book value should also increase over time as rents increase over the years)

Worth noting CLW quarterly dividend is completely unfranked.

 

[wayneL]

Worth noting CLW quarterly dividend is completely unfranked.

Yep, as are direct property investment returns.... Purported gross returns are pre tax.

Certainly something to take into account, but just part of the mix of cash returns, undistributed earnings, cap gain, etc

For the first time in my life, I am considering potential returns in 20-30 years time, when I might be struggling to understand 2+2=4

(Something even our current youth seems to be struggling with)

 

[Value Collector]

Worth noting CLW quarterly dividend is completely unfranked.

Yep, but so is the net rental income you would receive from any property you buy directly.

When comparing different dividend income streams, I always divide the franked dividends by 0.7 to bring them back to their real value, that way I can compare them with things like bank interest/bonds etc.

But I look at my holding in CLW as being more like a bond, that it inflation hedged, and will receive a capital gain at some stage. I hold it to bring stable income into my portfolio, where some of the other shares I own are guaranteed to produce a fluctuating dividend.

 

[qldfrog]

I haven't looked at very many at all, but I haven't seen anything with anything remotely close to 15% @qldfrog. More like 5-6% net.

This has resulted in my question here as it seemed a poor gross return for risk assumed.

15% was for commercial tenant paying all fees rates etc on small warehouse roughly 7y ago..obviously, when the tenant leaves and it takes you 1.5y to sell..yield crashes.
Overall experience was above term deposit return and paid my son education fees until he took over that cost with own income
Would have been better to put money in reit....

 

[tech/a]

My first Commercial property I still have.
bought in my Super in 2001 my company operates
out of it. Return each year on original investment now is
27% Capital appreciation 540%

As I step out of my company —-slowwwly —- and stay as equity partner
just the return from the property and dividend from the company is more than enough.
in retirement.

Just a working example

 

[dyna]

I haven't directly owned commercial R.E. since 2,007 when I disposed of a warehouse to take advantage of Treasurer Costello's crazy/generous superannuation concessions in that year's May budget.
Considering today's valuation, I left a lot of dough on the table for the buyer but was better off in the long term in managing capital gains tax liability without that single , lumpy asset in the portfolio .
R.E.I.T. capital returns have not been that great for the past few years but the unfranked income has been satisfactory.
Listed property shares mostly trade at a discount to NTA , depending on interest rates and where we are in the property market cycle , but if you are patient with buying and then holding until a reasonable profit- taking opportunity comes along , it's hard to lose money , I think .

 

[bsnews]

The fun with commercial property is in the purchase. Very easy to buy shares only need an account and some cash.
But commercial property about 40% deposit for the asset before the banks want to look at it.

 

[tech/a]

The fun with commercial property is in the purchase. Very easy to buy shares only need an account and some cash.
But commercial property about 40% deposit for the asset before the banks want to look at it.

So what sort of money are you looking to invest in a portfolio?

 

[bsnews]

So what sort of money are you looking to invest in a portfolio?

I am invested not looking to. I would like to obtain a commercial property for a new business I would like to set up. But the location I am after does not have a high turnover of property. Patience is virtue they say.