Investing in property without the hassle of tenants
Have you ever wanted to invest in property, but can't face the idea of dealing with tenants? The answer might be putting your money in a pooled property investment such as a managed fund.
After all, a commercial property fund will never phone you up in the middle of the night demanding you fix its toilet.
The advantages of commercial property investment include:
- Tenants rarely ring you up complaining and are responsible for the day-to-day maintenance of the building
- Capital gains fluctuate less
- Yields are currently higher than those on residential property
- Tenants pay all outgoings such as insurance and rates
- The commercial market cycle is independent of the residential one
It's possible to buy a run down commercial property for $100,000 to $200,000 in some parts of the country. But prices for decent commercial properties start at the $1m-$2m level.
If that's out of your league and you still want a slice of commercial action then a fund investment could be for you. Commercial property funds allow you to get foot in the door with much smaller amounts than you would need to buy a factory or shopping centre.
The great thing about buying into a property fund is that your money is spread between a lot of properties and between different types of properties and geographical locations.
AMP Capital's NZ Property Fund for example, has more than $1.4bn invested across more than 50 prime properties across the country giving investors access to a collection of assets usually well out of the realm of private investors. Its properties include:
- Botany Town Centre (Auckland)
- LynnMall Shopping Centre (Auckland)
- Telecom House (in Wellington)
Buying units in such a fund also means that you'll get a relatively predictable return. When the Chinese share market had speed wobbles earlier this year, investors ran for safety - looking for defensive stocks and New Zealand property funds shot up in value because investors saw them as being on the safe-end of stock market investments.
By choosing a fund, you're avoiding some of the risks of individual commercial property ownership.
In commercial property if you lose a tenant, your property drops in value automatically because the value of a commercial property is based on the lease. With funds, the risk is less because the investments tend to be in prime property where demand from commercial tenants is high and the spread of investments means the risk of such a disaster is spread.
On the downside, commercial property fund managers take a slice of the profits to run their business before you the investor gets your cut, meaning over all (in theory at least) that your return is lower than it would be if you invested directly in commercial properties. It should be said, however that you'd be more likely to have your money in a local warehouse than Botany Town Centre and the returns on different classes of commercial property aren't always the same.
Diana Clement
Independent Financial Commentator
Issue 11: 28-06-2007