When it comes to investment in the property markets, everybody wants to make a pretty penny - we, at Acumen Finance, know that just as well as you or anybody else does. That said, we also know that most people aren’t necessarily ‘in-the-know’ when it comes to investing and, while some understand the ins-and-outs of the residential property investment market, not all that many investors know everything they need to know about succeeding on the commercial property market in Australia.
Fortunately, the team at Acumen does know exactly how to navigate these complex markets and, in this article, we’re going to talk you through some tips to bear in mind while scouring the market for your next or first successful investment.
Without further adieu, let’s get on with the list!
Hot Tips For Building Wealth Through Commercial Property
Find Your Vision
Before you go into investment, you need to have a vision - it can be small, or it can be grandiose. Whatever it may be, you need to have an endgame in mind. You’ll find that, in the world of investment as in any walk of life, really, it is easier to make the right decisions if you already have an idea of the end goal - most likely, in this case, the pot of gold at the end of the commercial-investment rainbow.
Put a plan together for your journey - outline it, design your goals and innovate your final solution. In other words, crack on.
Do Your Research!
This particular listing will probably seem like a ‘duh!’ moment, but, in all honesty, many investments go wrong because the investor(s) didn’t conduct the appropriate amount of market research. Before investing, you should take everything into account from the economic projections of the local and national economy to the vacancy rate in the region. In some cases, you should even pay attention to the global economy if potential tenants may be dependent on global supply-chain distribution.
Invest in Hot Property
As part of your research, you should look for the prime areas in the property market. In other words, search for areas that are classed as hotspots for commercial, industrial or retail developments which are in high-demand locations and popular with potential or current tenants and buyers.
A key point worth considering when looking at ‘where’ to invest in commercial property is the public transport links, parking capabilities, visibility for onlookers and passersby, as well as accessibility for those travelling by car. Do not underestimate access and convenience.
Purchase a Leased Property
Sometimes you’ll find that a commercial property owner just needs to sell, for a myriad of reasons. More often than not, they’ll put properties on the market while a tenant is already leasing the space - and, it’s not difficult to pick up a property that has a tenant midway through a ‘long lease’. An existing long-lease tenant is advantageous for many reasons, but primarily because you will see returns on your investment instantaneously, from the first payment period onwards, and you won’t have to advertise the vacancy. This will also help you when it comes time for locating financing options.
Looking For Top-Quality Candidates
When it comes to leasing out your commercial property, you need to find tenants that are of the right calibre and who are looking for long-term leases. It shows commitment and potentially a decent upward trajectory for the business itself. You see, the value of your commercial property is primarily dependent on the property’s yield; if you find a strong tenant who is willing to sign, at the very least, a five-year lease, it’s an excellent start to your income-generating machine.
You should also look at the average rental cost per square metre in the local area, as well as in your property. And, hopefully, you’ll find that yours is not inflated against the market average. Why? Well, if the current rental value of your commercial property is higher than the market average, your tenants may be overpaying for the space and, upon the potential rent review, there’ll be little, if any, upside potential.
Check Out the Lease Structure
At the end of the day, being an investor is being a businessperson. You pay attention to the markets, you make decisions based on potential profitability, you deal with contracts, and you aim for constant growth. With that in mind, you need to maximise the profitability of your property investment.
Take a look at your options when leasing commercial property to companies that need the space and utilise their needs and potential marketplace capabilities as a form of leverage. Check how long the existing lease is, or an upcoming one can be, the terms of payment and the regularity and methods of rental review. And, always look at who will be paying the operating costs - you, the property owner or the tenant. Everything is negotiable.
Aim for a longer lease for the sake of avoiding vacancy and cashing in with a long-term revenue stream, and look for regular rental reviews to ensure that you can maximise your profits if the local property market rises. And, finally, you will want the tenant to be paying the bills because let’s face it; you don’t really want to foot the gas and electric tab for a manufacturing plant. That’d be painful for your wallet.
Flexing for Modernity
The modern needs of commercial property are a tad different to the traditional; it is no longer the case that a warehouse should just be a place to house pallets stocked with goods or machines prepared for the manufacturing process. Instead, modern-day companies like to have flexible working spaces, where you might find that half of a warehouse is used for, say, manufacturing, while the remaining two-quarters are used to store stock and as office-space. Flexibility in property design will ensure that you won’t be left with random bits of unused floor space> Always look to maximise the rental profitability of your offering to the commercial market.
Construction and Development Potential
Another key feature that attracts top-quality tenants, leading businesses, and will likely line your pockets with dollar bills is recently constructed or renovated commercial property. The more recent the construction, the less likely the tenant will have to do any work to upgrade or maintain the property during their leasing period. The appeal is understandable and understated - it saves money and hassle.
On top of that, you will be able to generate some cash savings through depreciation deductions which are higher on newer builds. Investors benefit from tax rules that allow the depreciation of commercial property to be used as a tax deduction against their per annum taxable income - a handsome benefit if you have lots of rental income.
On the other end of the scale, you could look to invest in undercapitalised properties which are a little lacklustre in quality but command a lower rental return than average. Get hold of one of these commercial properties and you can change it up with some renovation-work, increasing the value of the property while driving up rental rates.
Trust Your Gut
This most likely seems like an odd addition to this list, but it is the final and most important one. If you’ve conducted your market research, found an excellent commercial property opportunity, and have a sound strategy for the future, you should make the jump. A leap of faith is sometimes a necessity when it comes to financial investments and, rather than second-guessing yourself and letting fear or panic buckle you, just crack on and seal the deal.
Well, we’ll wrap it up there. Commercial property investment can be a risky yet incredibly lucrative revenue stream and, if you put in the research and due diligence, you can likely find your pot of gold if the property climate is right. And, if you’re buckling under the pressure of choice, always remember that the team at Acumen Finance is here to give a helping hand. If you need advice or financial connections, get in touch today, and we’ll make sure that you get all of the guidance you need to succeed. And, we’ll even hook you up to our hivemind of sophisticated Tier 2 and Tier 3 private lending firms who are looking to make a line-drive on some profitable property investments.