July 20, 2016

Keeping up with the Joneses… err, Market

Keeping up with the Joneses Market

Yet another interest rate drop! Investors are questioning where to invest for a decent return on their money.

So what does $1 million dollars invested in property on the Fraser Coast get me?

With direct property ownership there are basically only 3 investment options to consider – industrial, residential, or retail/commercial investments.

In reviewing industrial property investments on the Fraser Coast, recent sales reflect yields of between 10% and 11%. These yields have been attracting plenty of interest from both local and interstate investors. These properties have had solid leases in place of 5 years or more.

Buyer feedback indicates most property investors are currently chasing an income stream over capital growth. Recent sales evidence shows Fraser Coast industrial properties generating up to $110,000 per annum for a $1 million investment.

You can be as involved as you want to be by either choosing to manage the property yourself or appoint a manager. Management costs vary but are a relatively small % for an investor who is either interstate, travelling or doesn’t want or need the experience of managing industrial properties.

If we then compare this to residential property investments the same $1 million could buy you 3 or 4 residential investment properties on the Fraser Coast. After rates and outgoings you could expect to earn around $35,000 per annum. Residential property has a higher maintenance requirement but a larger client base to rent to, meaning less vacancy risk in the event you lose a tenant. The downside is if you get the tenant from hell, they are difficult to remove and require more specialist management than an industrial or commercial tenant.

In regard to retail/commercial property the same $1 million investment would typically return around $80,000 to $100,000 per annum. Commercial property leases can be to national or local tenants and if you invest locally you will be likely to be familiar with the property and tenant in question. This could be an advantage particularly if you elect to manage the property yourself.

The security and quality of the tenant is the main risk with all property investments. With industrial and commercial property some risk factors are that the tenant outgrows the property, consolidates the business, or worst case scenario, closes down. Research will go a long way to discovering where the tenant is within this cycle.

Your Solicitor and Accountant are best qualified to work through which option may be the most suitable for you taking into consideration all of your personal circumstances and investment preferences. There are plenty of strategies available for you. Whether you are using a Self Managed Super Fund or using the property rental income to pay down the property to give leverage for other opportunities will be your choice based on professional advice.

At the end of the day with any investment you have to be able to sleep at night, so do your research, compare the options and buy what you are comfortable with. The Fraser Coast offers an excellent opportunity to earn realistic investment returns.

There is, though, another option – You could always leave the million dollars in the bank and get around $25,000 return for the year/ Or wait for interest rates to go up – it’s just a matter of when. If you are into investment, is this really an option?

Tony Nioa is a Commercial Real Estate Agent with Colliers International. He has more than 30 years experience in the property industry (the majority of which is in the area of commercial property investment) and specialises in the Sunshine Coast and Fraser Coast areas.