Residential OR Commercial?

Which property purchase will give me the best financial return on my investment?

Comparisons between these property types over the years have largely been performed without factual foundation.  Using real data and applying discounted cash flow analysis to calculate the internal rate of return which delivers a tangible metric these two property types can be evenly compared.

The properties compared are:

 

1.  A 2 bedroom Strata Flat in Port Melbourne

2.  An Office/Warehouse of 277m² in Port Melbourne

 

The data has been compiled from 2006 to March 2014.

Property Type	2006 Purchase Price $	2006 Income at time of purchase $	2014 Sale Price $	2014 Income at time of sale $
Flat	340,000	13,000	490,000	16,120
Office/Warehouse	590,000	38,000	690,000	45,000

 

Assumptions:

• The flat has experienced no vacancy and arguably could earn more rent per week;
• Flat income is a gross annual rent – landlord pays water rates, council rates and owners corporation charges;
• All costs save for Land Tax, are paid by Lessee of office/warehouse;
• When the office/warehouse is re-let circa 2010, an allowance of 4 months vacancy plus 3 months’ rent free is factored in, and subsequently circa 2013 a further 3 months’ rent free is provided to the Lessee.
• No loan repayments, purchase or sale costs have been factored in.  Nor have any capital improvements been undertaken to either property. 

The Result:
The annualised internal rate of return on equity over the investments life, is:
 
1.       Flat – 8.71%;
2.       Office/Warehouse – 9.14%.

Conclusion:

Acknowledging there are a host of items which can “financially engineer” a “potentially” more attractive outcome, if property is purchased observing the basic fundamentals property provides stable and reliable returns.  Noting the above internal rates of return have been achieved throughout the GFC and its aftermath.

Whilst I have undertaken this comparison between only two property types, it is not conclusive as there are numerous other property types where vacancy periods may be non-existent yet the initial yield on purchase is lower, or alternatively certain property types can experience prolonged vacancy yet are high yielding on initial purchase.

However the ultimate reason to invest should be predicated on understanding what you are investing in, which will provide you with a greater degree of comfort and certainty – ultimately a decision you alone should make with some practical reasoned advice from a known and trusted advisor; being fully cognizant of what you can comfortably manage.

Simon Regan
Director - Sales & Leasing

Owners Corporation and Insurances in 2012

We are all aware of the issues that have been faced in Australia over the past year and the effect that it is going to have on insurance premiums. Price rises are driven by the number and cost of claims across the whole industry, Owners Corporation policies unfortunately will not be spared in this and it is expected that most costs will rise, some quite significantly. 

Having said that, we are told it is not all doom and gloom. Australian insurers are amongst the best managed and leaders in Strata/owners Corporation insurances. This will assist in keeping costs for residential apartment owners, though rising, at a competitive level and favourably in line a typical household policy cost. 

Your Owners Corporation insurance does also cover many aspects above those provided in household policies due to the added infrastructure, services provided in these type of complexes and added policy benefits. Our aim is to make sure you are getting good value for money coverage for the balance needs of your property. 

Peter Davies, Manager - Owners Corporations

D: 03 9695 7718 

E: peterd@dixonkestles.com.au

Inaugural South Melbourne Festival

"Scout About"

Sunday 19th February, 2012
11am – 6pm

The South Melbourne Street Fair is coming up so mark your diaries to join us for a celebration of culture and diversity in the heart of South Melbourne. Held on Coventry Street, between Clarendon & Cecil Streets, you can take the 96 or 112 tram.

Highlights include:

Dave Graney, Nick Barker, Delicious Cuisine, Entertainment, Demonstrations, Unique shopping

And of course your local estate agent – Dixon Kestles!

We hope to see you there...