Commercial Real Estate Investor's Guide, Compiled by Peter AranyiWEDNESDAY, 20 APRIL 2005Reviewed by Richard Gruiters Content supplied bywww.goodreturns.co.nz The Commercial Real Estate Investor's Guide gave me a clearer picture of the pros and cons of commercial versus residential property, theirsimilarities and differences, the oddities of commercial property andthe different types of commercial properties and their pros and cons.As an investor in residential property, I have always wondered aboutand been intrigued by commercial property. Prior to reading thisbook, I had plenty of thoughts and questions running through myhead: *Is commercial property as difficult as I imagine it to be?*What similarities are there between residential property andcommercial property? *Would experience in residential property investment be of any use in commercial property investment? *Will this book give me the answers to everything regarding commercialproperty? *Will it inspire me to enter the world of commercial property? Or will it just confirm my thoughts about commercial property: *That it is not for the little guy. *That it is only for the big business types - the Donald Trump's of this world.The book opened up a whole new world to me - the world of investingin commercial property. This is a very comprehensive book, packedfull of vital, specific information from start to finish. I gainedvaluable information from every page - a lot of it which wasobviously sourced from experienced, astute commercial investors.Some of the interesting points I discovered were such things as:*The Sale and Purchase stage of a commercial property deal seems alot more technical. Detailed investigations are required prior toputting in an offer and during the conditional period. To rely onthe information which has been supplied by the agent/vendor, or eventhe information in the current lease can be a mistake - you need tocarry out detailed due diligence of the property, more so thanresidential property.*Where as residential has the three L's location, location,location, commercial has its own three L's - lease, lessee,location. This indicates how much importance is placed on the lease.*Whereas residential property has an inherent value, based on thearea it is located, similar houses in that area combined withaverage rents in the area - the capital value of commercial propertyis largely dependent on its yield (or cap rate in commercialproperty terms).*Details on the commercial property's yield or cap rate, is not asstraightforward as residential property - the cap rate of the samecommercial property can vary depending on such things as the type oflessee, the type of lease, or the length of lease remaining on theproperty.*A larger amount of money is required to invest in commercialproperty.*Banks are not prepared to lend as much on commercial property.*Returns are better from commercial property, because the rentalreturns are net. This is because the Tenant is usually the one whopays for outgoings such as rates and insurance.*Commercial property does not come under the Residential TenanciesAct. In a commercial lease, what you write down, agree on and sign,is binding.*The basic strategies for buying well when purchasing commercial arethe same as residential: o Buy under market value o Look for hiddenvalue o Negotiate on price and terms o Can you change the use of theproperty to increase its value? o Make a cash offer o Look for freespace that can be usedFor someone like myself who has reasonable experience in residentialproperty, but no experience at all in commercial property, I wasimpressed with the depth of vital, insightful information. I feel Ihave come away with a realistic picture of what is involved inpurchasing a commercial property.To my mind, commercial property is not something that you could justgo out tomorrow and buy, without being found wanting. It requires alot of work up front. Amongst other things - analysing thecommercial property and the market in general and doing detailed duediligence to ensure the deal and the lease is what it is made out tobe.For anyone who has given serious consideration to commercialproperty and wants a no-nonsense realistic picture of what isinvolved, then this book is ideal. It will give you a deeperunderstanding of the pros, cons and tricks of commercial propertyand provide you with a good grounding on what is required to investin the commercial property market.