Ingrid Filmer answers: Is my potential asset good value?

Commercial,Investment PropertyTuesday 12 June 2018

For Ingrid Filmer, a large part of the satisfaction she derives from working as a commercial property professional is helping clients understand the nuances of their investments. The Burgess Rawson chief executive enjoys that light bulb moment clients have when they finally comprehend what for many people can be obscure investing principles. Here, she sheds some light on a topic property investors need to understand if they’re asking: is my potential asset good value?

Investors need to understand that the rental yield is used to compare and value properties but is not the actual return an investor receives.

The rental yield is the measure of how much income your property generates as a percentage of the whole value.

Rental yield can be expressed as gross or net.

Residential rental yields are regularly expressed on a gross basis because the landlord pays the outgoings related to the property.

In commercial investment terms, the rental yield is “netted” back to take into consideration the net return, after accounting for normal outgoing expenses.

Yields assist investors to compare like-for-like properties and assess risk associated with the asset.

As with most investments, the greater the return, the higher the risk.

In the case of commercial investment, higher yields could represent a lesser quality of tenant, an above-market rent or lower land value as a component of overall value.

High returns are not always better.

In fact, the higher the quality of the property, or more in demand it is, the lower the yield will be.

Understanding the land value, the tenant covenant and the market rent all have a bearing on the yield and hence the amount an investor is willing to pay for the property.

A commercial rental yield is simply the net rent — rent minus any outgoings payable by the landlord — divided by the purchase price.

For example, in May we sold Craigieburn Dental on a rental yield of 4.57 per cent, therefore, the net rent was $59,487 on a sale price of $1.3 million.

Rental yields are affected by the fundamentals of the investment, but they can also be affected by the overall price.

Lower-priced properties, say under $2 million, will sell for lower yields due to a greater level of competition as investors seek to move from the more regulated residential sector into commercial.

Is my potential investment good value?

The sale of this childcare centre in Reservoir struck a yield of 5.63 per cent

Once purchased, investors in the commercial space have access to depreciation to increase their returns.

It is important that yield is underpinned after an investor buys a property.

This is done through strategic management.

An investor may negotiate a higher rent, or a larger guarantee or the lease may be assigned to a national tenant.

Key changes to the fundamentals that underpin yield will translate to a higher value property.

View the original article here.

To find out more about the properties in our portfolio, and how we can help you with sales, leasing and property management services, please contact us.

Originally published in the Herald Sun

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Is my potential asset good value?
Is my potential asset good value?
Is my potential asset good value?