Syndicates a less costly way to get a piece of the real estate action.
Fancy owning an office block or a couple of shops? It might not be as far out of your reach as you think.
Would-be landlords are being advised to stop focusing on Auckland houses that might not generate enough rent to cover the mortgage.
Auckland's house prices have risen an average 13 per cent over the past year but rents have increased only about 5 per cent.
Property commentator Olly Newland said landlords could get a much better income from commercial property.
Many could be bought for less than the $720,000 estimated in March by the Real Estate Institute as the cost of an average Auckland house.
Trade Me figures last month showed the average residential rent for a three-to-four-bedroom property in Auckland had risen to $550 a week. "People are starry-eyed about houses and they drive past shops, offices," Newland said. "[But] people are collecting rent from those places, too."
Newland said the commercial market was accessible to "mum and dad" property investors throughout the country. Most banks lend up to 60 per cent on a commercial deal.
But he warned new investors that finding a good tenant was crucial to any commercial deals.
Alan McMahon, national research director of real estate services company Colliers, said it was common for investors to start with residential property and move to commercial as they became more experienced.
Even for expensive properties, including suburban offices and industrial buildings, the couple of hundred thousand dollars deposit could be raised against the borrower's home equity.
John Church, Bayleys national director of commercial real estate, said turnover in the commercial market was strong and the biggest constraint on the market was a lack of supply.
The 3,838 commercial sales in New Zealand last year were valued at $8.25 billion. In 2013, there were 4,855 sales but Colliers data showed they were valued at only $5.89b.
Church said there was also huge demand for property syndicates, where investors band together to buy commercial properties that are managed for them.
Syndication firm Oyster Group chief executive Mark Schiele had noticed more interest from young investors. Oyster recently offered 267 $50,000 investment units in Cardinal Logistics' warehouse in Westney Rd, Mangere.
"One reason to invest in commercial property syndication is to be part of a substantial asset that you would not be able to afford in the normal course of events," Schiele said.
"A $25-$30 million commercial building is outside the reach of most people, but on a proportionate basis they can do it."
A cheaper option is to buy shares in a sharemarket-listed property trust or company. Options include Argosy Property, whose shares were trading for $1.14 this week, and Kiwi Property Group, trading at $1.29.
Kiwi Property owns sites such as Auckland's Sylvia Park, ASB North Wharf and LynnMall. Investors must hold a minimum 200 shares.
Property Council chief executive Connal Townsend said it was a good way for small-scale investors to get a slice of the action.
"Even through KiwiSaver, you can say you want a tranche of that, maybe 15 per cent or 25 per cent of your portfolio - maybe more if you have a big appetite."
Opportunity too good to miss
Property investor Hadar Orkibi usually buys residential properties in Auckland. But he recently bought his first commercial property, a block of four shops and a two-bedroom flat in Central Otago.
He paid $775,000 for it and it is rented at $69,000 a year.
Orkibi discovered the property when he was considering buying a business operating in it.
"I would rather be my own landlord," he said.
"The timing was good for the vendor who had another project on the go and we agreed on a purchase price that represented 9 per cent net return."
The shops were rented to long-term tenants who also paid the outgoings on the buildings.
When one tenant left, Orkibi opened a pizza and kebab takeaway business in the premises.
"Knowing this block has high foot traffic and that properties there are tightly held I couldn't resist the opportunity."
He said commercial investing was a viable alternative to residential for people who understood the differences and were prepared to get advice.
"Taking the step to commercial property was a natural progression that meets our passive income needs."
His bank required a 40 per cent deposit for the deal.