Waikato Business News August/September 2020

8 WAIKATO BUSINESS NEWS August/September 2020
CONVERSATIONS WITH MIKE NEALE
OF NAI HARCOURTS HAMILTON
Should I sell my
commercial property
– Or is there a better way?
There have been some interesting
discussions over the last
month or so with commercial
property owners looking to
make decisions – should I sell
up and put the money in the
bank, enjoy life and remove
any stress that the property may
provide in the future? Most are
close to or at retirement age and
whilst not needing the money
for anything in particular, are
looking for a passive income
and not wanting to leave the
family with future issues that a
commercial building may have.
This is an actual example
from a discussion we had with
an owner about a fortnight ago.
Building: Returning circa
$65,000pa plus GST and
Outgoings
Building Age: 1990s
Sale Value: circa $1,100,000
plus GST (if any)
They have owned the building
for over 20 years and it’s now
freehold with no debt.
The reason they are considering
selling is that recently
there have been a few dramas
over Covid-19 and while a reliable
local tenant is in place,
there are now challenges with
the rental being paid.
If they were to sell and
put the money in the bank at
a return of say 1.50 percent,
Mike Neale - Managing Director,
NAI Harcourts Hamilton.
it would provide a return of
$16,500 per annum before tax.
The Better Solution?
May well be to retain the property
and get it professionally
managed. Why and how would
this work?
• Based on the current net
rental it currently provides a
return of 5.9 percent.
• Even at the current 50
percent rental being paid, it
provides a net return of 2.95
percent.
• In many cases the ADLS
Lease provides for the landlord
to recover the cost of
the property management
from the tenant.
Even if management expenses
are not recoverable (at say 6
percent), the above returns
would still be 5.55 percent or
2.77 percent respectively. This
is significantly better than the
returns in the bank.
Another Important Element
To Consider?
There is no capital gain on the
money held by your bank – in
fact, allowing for inflation, it is
quite the opposite. As an example,
this particular property has
doubled in value over the last
15 years.
There is increasing talk by
pundits that with the quantitative
easing programme and very
low interest rate environment,
we are likely to experience
asset price inflation over the
next few years, i.e. the value of
the assets, will increase as we
see increasing competition for
income-producing assets, due
to the alternative of low returns
from bank deposits.
So, if you are selling
because you don’t want the
management hassle and compliance
issues, or worried about
leaving it to family members in
the future, then this may just be
worth consideration.
If you don’t need the capital
for anything in particular,
but prefer or would be happy
to maintain the cashflow, this is
definitely worth serious consideration.
Yes, buildings will require
future capital expenditure and
even allowing for the occasional
vacancy, the combination
of the returns and future
capital gains, make property
a compelling investment both
now and in the future. As one
of my colleagues once said,
“only in Holland are they making
more land”- you can guess
where he originates from.
All assets have some element
of risk associated with
them – some will remember
the Bank of New Zealand being
bailed out in 1989/1990 and
the share market crash of 1987
– and real estate is no different,
but it is an investment in
something tangible - bricks and
mortar.
A great property manager is
key to success in real estate.
- Robert Kiyosaki of the book, ‘Rich Dad Poor Dad’.
I will at this stage give a
plug for Greg Wills who heads
our NAI Harcourts Property
Management division (there
are others out there too). Greg
has previously managed one
of Hamilton’s most challenging
assets – Centre Place
shopping mall. This experience
has left him with not
only the technical skills and
facilities management experience,
but the ability to deal with
a wide range of tenants and
the various personalities that
are often the most challenging
aspect of property management
in my view. He would be happy
to talk to anyone considering
their options – so on a no obligation
basis, give him a call on
021 896 585.
NAI Harcourts Hamilton
Monarch Commercial Ltd MREINZ Licensed Agent REAA 2008
Cnr Victoria & London Streets, HAMILTON
07 850 5252 | hamilton@naiharcourts.co.nz
www.naiharcourts.co.nz
MODERN INDUSTRIAL WITH ALL THE FEATURES!
8A De Leeuw Place, Te Rapa Park, Hamilton
• High stud industrial building of 1,357sqm approx.
• Tekplas as tenant returning $180,441pa plus GST net, until October 2021
• Fully fenced concrete yard, two entrance ways
• Designed for B-train movements around the building
• Canopy for off-loading, dangerous goods area
• 3,844sqm (more or less) of industrial zoned land
De Leeuw Place is part of Te Rapa
Industrial Park; a well-established
premier industrial estate. The property
has good exposure to Te Rapa Road,
and is close to Hamilton’s main
city arterial routes and Expressway
interchange junctions.
Close by are The Base Shopping Centre
(NZ’s largest bulk retail centre), also
Te Rapa Gateway Industrial Estate and
Pukete Industrial Estate.
Nearby neighbours include Alsynite
One NZ Limited, Awards Trophies &
Engraving, Bridgestone Tyres and
Crown Worldwide Movers to mention
a few.
Deadline Private Treaty: 4pm, Thursday,
1st October 2020, NAI Harcourts,
678 Victoria Street, Hamilton
Theo de Leeuw 027 490 3248
theo.deleeuw@naiharcourts.co.nz
Borders are indicative only
Owner Occupiers and Investors take note, do not miss
this opportunity. Inspections are recommended.
Full information memorandum available on request.
Mike Neale 027 451 5133
mike.neale@naiharcourts.co.nz
Monarch Commercial Limited | MREINZ | Licensed Agent (REAA 2008)