Positive Gearing is the Name of the Game

If you want a compelling argument for investing in commercial property, you need to look no further than official figures from the Australian Taxation Office.

Consistently, 60% of homes that are rented out incur a loss for the landlord every year, according to the ATO. It is a very different story for commercial landlords where long-term leases with guaranteed rental income mean that barely any commercial property ever makes a loss for its owners.

Negative gearing, the ATO’s official measure of a landlord’s losses, is the greatest advert for buying commercial, not residential.

It is why, increasingly, we are seeing first-time buyers registering for our auctions. Twenty of the 53 properties sold at our March auctions went for less than $2 million. It is a similar story at our May auctions, where 17 of the properties have reserve prices below $2 million and long-term rental incomes ranging from $28,747 to $105,148.

The thing that most surprises people looking to invest in commercial property for the first time is how similar the entire process is to buying a home. You see if you have enough savings to pay for a deposit then speak to your bank or a mortgage broker about how much you would be able to borrow.

The only tangible differences are you might speak to an accountant about the benefits of setting up a trust or self-managed superannuation, and that to register for our auctions you need to pay $10,000, which is refunded in full.

The registration covers all three auctions run on successive days at the Sydney Opera House, Melbourne’s Crown Casino, and the Brisbane Hilton. You can either bid in-person, online or on the phone with an agent.

Picture: St Pauls Australia Post in Randwick

Everyone needs to drink, eat, shop, sleep and stay healthy. Most Australians work and drive a car, and more than a million families have at least one kid in childcare. These are the core commercial property functions that our auctions relate to every six weeks. It is why we are the go-to agency for essential services.

For less than $2 million in May, you can own a commercial property with long-term tenants running childcare or a pharmacy, bank, restaurant, real estate agency, vet, legal firm, motel, or government office. The financial returns are easy to work out and laid out in our Information Memorandums (IM) which we forward to all interested bidders.

For example, an Australia Post branch in Randwick and a childcare centre in Ararat both have annual rental income of approximately $85,000. If you successfully bought one of them for $1.7 million, then your rental return would be around 5%, and if it sold for $2.1 million then the rental yield on that would be around 4%.

The current bid and the rental yield are both updated online and on the big screen in the auction room, so you can see how the rental return is tracking.

With interest rates at historic lows – even an interest-rate rise of 0.5% will have little effect on repayments. Under the scenario of buying that childcare centre in Ararat for $1.7 million with a $600,000 deposit, repayments on a variable 10-year, $1.1 million mortgage would increase by $3290 per year. It is small potatoes compared to your income from the property of $86,940, which is also boosted by a 4% rental increase every year.

Here are the locations of the 17 properties that have long-term leases in place and are expected to sell for less than $2 million at our auctions:

Sydney Opera House, 10 May 10.30am: Cootamundra, Moree, Randwick, South Grafton, Tomingley.
Crown Casino Melbourne, 11 May 10.30am: Ararat, Bright, Epping, Kialla, Nathalia, Sunshine West, Sunshine West.
Hilton Hotel Brisbane, 12 May 10.30am: Bongaree, Gladstone, Rockhampton, Rockhampton, Toowoomba.

– Kieran Bourke, Partner NSW


Stay up to date with our latest portfolio auctions & insights