I was looking after Commercial real estate as a potential investment opportunity 20 year returns for the same comes out to be 15-19% depending on capital appreciation.
Any Cons of the investment ?
Attaching the model here…
Commercial Real Estate Rental.xlsx (14.0 KB)
I invest in commercial real estate and have added couple of properties in my portfolio in last five years.
The yields in commercial real estate were fantastic 5 years ago sitting around 11-14 per cent depending on the deal…these days it hovers around 7 to 9%.CP is great for cash flow and with current yield you can free up a property in 8-10 years and then it generates FCF…
Cons of commercial properties in my opinion
It also depends on asset type, location and many other factors but generally speaking if it’s not in tight demand area then desirability of the property decreases once your property gets little old in 5-7 years especially where there is a lot of new supply. I suggest going for the best asset to keep your CF sustainable
Aim for corporate clients as the CF would be more sustainable and lease will be longer.
You want to make sure on the supply side of the equation. Generally speaking there is a lot of supply in India at the moment and it can compress the yields further and increase the vacancies.
You will only get the simulated capital growth if your asset selection is spot on.
Dont go for used CP…Aim for new ones to achieve higher yield
I feel 7 percent is bit low…even platforms like propertyshare.com with best grade properties fetch around 9 percent.
Have you incorporated ongoing fees like annual maintenance…
If your tenants leave after 5 year you may need to renovate a bit.
Exactly, how I reached to propertyshare, started looking for better yield for CPs but couldnt find any properties which were in the budget range and offered good yields. Generally large corporate offices have much higher yield than small offices/shops and propertyshare lets you invest in that but don’t know much about their performance.
No I haven’t but even after including that NET FV is still +ve
No,thats not correct.No major differences yieldwise just because of asset size.
Yes, that’s what i meant basically
Which banks give loan for investing in commercial real estate? Is it possible to get a loan without a proof of cash flow from salary? Because usually there is a limit of loans EMI of around 30 to 40% of income (not including the rent from the invested real estate).
Would be great if we could validate this with past capital appreciation data of commercial real estate.
Data of 10, 20, 30 years would be good.
Any idea where to fetch this from?