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How to invest in industrial property




PROPERTY investors with an eye for extra income are increasingly looking into industrial real estate.

Buying factories, warehouses and workshops may be cheaper than you think, although property specialists warn that they come with many differences that would-be investors need to understand.

Industrial propertys income yield is higher than residential property, at about 6 to 9 per cent compared with 3 to 3.5 per cent, but comes with higher risk, says Metropole Property Strategists CEO Michael Yardney.

When they become vacant, they are usually vacant for a long period of time, he says. It needs somebody with deeper pockets who can afford to hold onto it.

It also is a much more complicated lease, usually organised by a solicitor, for longer periods of time usually a minimum three years with a couple of options (to extend the lease).

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Like other forms of commercial property, leases are based on net rent which means outgoings such as council rates and maintenance are paid for by the tenant. Investors also need to deal with GST, and rental income that is typically linked to inflation, which is currently low.

Many smaller industrial properties can cost between $350,000 and $500,000, below median house prices in most capital cities.

High rental returns and low interest rates are driving more residential investors into the industrial property market, says asset management company Bawdens Industrial.

Managing director Barry Cawthorn says cash flow is king, and that is what industrial property delivers.

Astute investors are realising you cant eat capital growth, he says. We are witnessing a shift towards investors purchasing industrial property in their self-managed super funds to generate an income for life.

Cawthorn says statistics show that the average annual return of industrial property for the year to March 31 was 15 per cent.

Newspapers and websites such as realcommercial.com.au are good places to search for industrial properties, and some have handy online guides and tips.

Yardney says new industrial property investors sometimes fail to recognise that they should be getting a higher yield than they do on houses. When buying smaller properties within a complex, always check that car parking is sufficient, he says.

Buyers should look for properties that have quality tenants, a flexible layout and are close to freeways for transport.

High ceilings are important because a lot of people stack and store.

People nearing retirement may benefit from industrial propertys higher cash flow.

We often recommend industrial properties or other commercial properties to clients to blend the mix, Yardney says.

Should you be staying away from shares no experts say




SHARES can be scary, particularly if you feel sick watching the value of your assets shrink by almost 20 per cent over a few months.

While the downturn in the Australian sharemarket this year has left many would-be investors running in the other direction, experts say the best buying opportunities are often times like these.

Catapult Wealth financial planner John Lawler says the share sell-off reflects global uncertainty and people trying to predict the future, but theyre still the same companies they were.

If you just look at the dividends alone, the Australian market is paying probably twice the rate of income you would expect to get on a residential investment property, he says.

The 5 per cent average dividend among major companies which is closer to 8 per cent once you include tax credits from franking is also much higher than savings account interest rates.

If you have money, you need to put it somewhere under the mattress is going to get you no return.

Of course, cash and property dont suffer the savage falls that we see in share prices. Lawler says at current levels, share prices are supported by their high dividends.

He says many big companies have been sold down because they announced downbeat outlooks at the recent profit reporting season. Conservative guidance is easy to beat, and thats when you get outperformance.

COMPARE TERM DEPOSITS

Low interest rates, low fuel prices and low wage inflation are all good for business. Eventually its going to turn around, Lawler says.

Dont put all your eggs in one basket, always buy for the long term, and focus on the income which is more guaranteed than the capital.

Wealth On Track principal Steve Greatrex also says a long-term perspective is vital for sharemarket investors.

Moving out of shares now is only going to crystallise a loss in many cases, he says.

Five-year outlooks for shares globally are much more positive than other investment classes such as bonds and cash, Greatrex says.

Now that the market has fallen, if you want to consider it, now is the time.

Greatrex says we are in a low-inflation and low-return world, and people will get better returns from shares than other asset classes but may need to lower their expectations.

Australians are continuing their love of property but not so much shares. People panic and they get into shares at the wrong time when things are really great and get out at the wrong time when things are really bad which doubles their losses.