I think the first rule of commercial re investing is know the area in which you wish to invest well.
I've had three commercial properties here in Canberra over a period of about 6 years. When I bought, the yield on the properties ranged from 11% to about 15%.
My intention upon buying was never to sell as what I required was income and to lock up the value for my family upon my death.
Over the period, the yield has fallen to less than 10% and there has been a significant appreciation in the value of the properties. This surprised me somewhat as the dogma had it that capital appreciation on commercial property is much less than on residential property. Clearly, this appreciation reflects the boom overall in RE prices over the period.
The largest of my properties (office space within the parliamentary triangle) has been vacant now for nearly a year since my tenant departed. In Canberra so much depends on the electoral cycle. Commercially, the city goes dead before an election and it is only now beginning to show a revival.
Bottom line with commercial RE, be sure to factor in a long vacancy period bewteen tenants. For me, the income from the other properties has payed for the overheads on the vacant one. If I had been over leveraged. I would have been in serious trouble.
At this stage, I've put the large property up for sale or lease. Taking an 90% capital gain might not be too bad...
