I was really lucky to invite, a top performer, real estate agent. You are probably very familiar with his name, because you will see his name everywhere, especially if you see a commercial shop. On the front gate, you will see his name. Let me tell you, he is Michael Chen, from James Law. Michael is a top performer real estate agent. He has over 10 year experience in dealing with commercial lease and commercial sales. And recently, he also involved some large development projects. So he’s also specialized in apartments, and sub-division, sales, etc. Let’s welcome Michael. Thanks very much for your time today.
— No, that’s okay.
— Michael, can you give us some introduction about what you are doing, and what you have achieved so far?
— Okay, my name is Michael. I work for a firm called, James Law Realty. So, I’ve been doing real estate since 2009, so it’s almost 10 years. So when I first start, the market was at the bottom, you know, so now is not the worst time. I think now is quite a good time actually. So, I have been dealing with commercial real estate for a long time, and I’ve managed to help over 100 commercial landlord, to find their tenants and secure the lease. I think I am quite specialized, in the commercial property area. For the past few years I am heavily involved in new development such as hotel, apartments and sections. So, you know, for the past few years, quite good. Now, it seems to have slowed down. Now, I am back to my commercial boots.
— Yeah, I’m sure you are very specialized in your industry, because I heard you have just written a book and become an author.
— Can you tell me a little bit more about your book Michael?
— I think I’m the only Chinese one who wrote a book.
— Wow! Very well done! It’s written in English, is it?
— Yes in Simple English.
— Yes, very good.
— The point of this book is just to, tell all the audience that the experience I have been receiving, for the past 10 years, selling real estate. Tell them how to, things like, doing staging for good marks, how to do your own market research for your own property, how to run your open home, if you decide not to go with an agent.
— You will find a link in this video below. Thanks Michael, I really impressed with that book. A lot of people actually underestimate how much work a real estate agents put in to get that result. Some people even use their friends, just do them a favor, but in fact, that it’s actually a professional service. There is a lot of expertise involved.
— The cheapest agent, will cost you the most.
— Okay. —
So, like you said, there is a lot of of work, involved in our work.
— Yes. So I think when you have a particular client, it would probably take a couple of months. But, in fact, to get to their results, they actually require many, many, years experience. So you can’t just judge their fee, just based on how much time they put in. They actually. Their specialty, their experience, that they are actually buying, so, that’s a really good point Michael.
— Okay Michael, the reason. I invite you to this show, is because recently. I had a lot of enquiry about purchasing commercial property. I guess, part of the reason is, there is so many policies that came out recently, that includes foreign buyer ban and brightline rule. And lots of them are, actually against buying residential property. But, at the same time, they actually could commercial property. So people are thinking, maybe it is a time to think about our terms of investment. And also, you know, residential markets have plateaued at the moment, so people doesn’t see the growth So maybe commercial is a better choice. However, there is a lot of people actually had less knowledge about commercial property. So, in today’s show, I just wonder if you could share with us, what is the main differences between a residential property and a commercial property.
— Yeah, sure. No problem. So the big difference, just like you said, people think the residential property is going to be flat for the next few years. So now we should change our focus to high yield property, so that is my first point. The cash return, we call it the yield return, for the commercial in Auckland For a million dollar property, which is the original house price in Auckland is about 5% to 5.5% Net Yield Return. However, if you spend, one million dollars, buying a house in Auckland, and you take out all your expenses such as body corporates, management expense, maintenance etc. It is about 3% at the end of the day. So compared to residential, commercial will give you more cash return annually. It’s about 5. So that’s reason one. The other reason I want to share is for residential, there are too many rules at the moment, government is putting too many regulations, such as you have to install, what do you call it? The insulation maybe air conditioning later on. Okay, they are too many rules. With commercial property, there is only one disagreement. And the tenant, they pretty much look after the property by themselves.
— So, for example, there’s a toilet broken in a shop, who do you think will fix it? The tenant will fix it straight away. With commercial, like two bedroom unit, they will call the property manager, or the landlord, to come and fix for them. But that’s the difference. Residential, involves a lot of your time, effort to do the maintenance and management. But with commercial, there is a lot less management. With the time you save, you can do other things. You can try to do another business, which is also very important. Okay, so, with tenant, we know, For example, a two bedroom unit or a apartment in the city, in Auckland especially, the occupancy rate, is so low at the moment. So, they’ll be two weeks out of the year, it will be empty but the rest there will be tenants paying the rent. This is very good for the cash flow and the certainty for the bank point of view. With commercial, they are a risk for a long period of occupancy falling through. So there’s a risk for your client, for the buyer to take into account so when they are thinking of purchasing commercial property. And also, with tenants, commercial tenants, tend to sign longer lease, like 3 years, minimum 3 years. Quite standard. But with residential, it is one year lease, one year rent, so after one year, they can decide to extend another 6 months or they can just move without paying any, what do you call it, letting fee. So, tenant no longer pays letting fee. There’s no area for them to shift around, so this is very bad for the residential landlord now. Okay so with funding. I think Connie knows well about that, so if you want to buy a commercial property, the funding requirement is higher than you buying a residential property. Alright, so we need a better cash flow, your background must be stronger, you know before you can buy a commercial property. So anything you want to…
— Excellent Michael. Thank you for your insights. They are really, really valuable. What I take from what you just said is that, commercial definitely has it’s pros and cons. The advantage, I guess, is about longer lease and better yield and also landlord doesn’t have to be involved a lot in terms of maintenance. So they are really, really good for people who are after a cashflow and busy with their life and other things. So that would be a really good choice And also at the moment, with the residential, there is a lot of changes, in terms of the tenture rule and the capital growth, it probably is better to diversify their property portfolio to add a commercial property. But on the other hand, I also heard what you said about the cons, which is the disadvantage. They are maybe a high deposit to purchase, we can discuss the next topic, in terms of funding for commercial property. And also, just bear in mind, there may be a long vacancy period. So Michael, just in terms of vancancy. From your experience, what is the average vacancy period?
— It really depends on the location. A lot of factors, location, size of the property. I think most likely, the timing. Because there is no such thing as bad location. Bad shop, I mean, some tenants stay there for long period of time, 20 years. Then the tenant leave, they take the landlord two years, to find another tenant, maybe, so that tenant will stay another 20 years. So it isn’t really about how long the vacancy period is, it is really about the timing, and how you present your property. You have to do it alright, in order for the new, the right tenant, to show up. I mean, just don’t miss out the right tenant, if there is one. Okay, so the commercial leasing agent will tell you how do you present your property, how do you negotiate your lease with a new tenant. Because landlord doesn’t have as much experience as we do. We study this pretty much every day but they do it, maybe, once every 3 years. They own big corporations, they don’t do as many lease as we do. So just talk with lease agent, give market feedback, how much your property can be leased, how long it can be leased for, something like that.
— Great! It’s really interesting Michael, because that is something I didn’t know. So, I saw some buildings, especially around my offices, they vacant for quite a long time but I guess, from what you said, if you look at longer term, if they sign a long lease, say 10 years, and some even longer. If you look at the next 10-20 years, the vacancy is probably not as big as residential. With residential, you probably get tenants in two weeks but every 6 months, or every 12 months, they leave, you have to make allowance for another couple weeks, so it all adds up. So, that’s why I really, just realized, from what you were talking about. The second thing, I guess, is just to let people know that if you are not familiar with investing commercial getting tenants is probably a better idea, to get a commcercial lease agent, to help you out. Yes, there will be a cost, nothing is free these days. But I guess this is about the return of your investment. If you can get a really good tenant, in the quickest way, then it is definitely worth the investment. Thank you so much Michael, and so much insight. I know there is still a lot of things we haven’t discussed. But as a first session, I think it’s really very insightful, very informative, to give the audience an idea in terms of, if commercial property is a good choice for their investment. In the future, we will invite you back, and we can talk about other aspects of the commercial property. Again, thank you so much for your time Michael. We will put your contact detail in the link below, so people can find you if they are interested in buying commercial or lease commercial.
— Welcome. Thank you.
— I hope you find it useful. If you know someone who is interested in buying commercial property or renting commercial property Please feel free to contact Michael to get expert help. Bye Michael.