Commercial property 101 - a guide for those looking to expand their property investment portfolio.
It doesn’t suit a man much to think he’s not one of the big players. In fact I think most of them secretly somewhere believe they are. And as any big player’s partner knows, it’s important to always let them believe that you think they are too.
It’s natural to get a little alarmed when our Other Half stands on the brink of something new. Especially when it involves spending substantial savings. But as good partners, we know that the best way to sort things is quickly, subtly and of course playing by the golden rule, letting them know it was all their own idea.
So ideas I needed fast, as the Other Half was dabbling his toes into a crowdfunded investment in commercial real estate. Before he bought though, he needed to recap the principles of traditional commercial property investment. So these I fed him:
First prize is a low-risk property with a high return, but if you don’t get that find a good compromise between risk and return.
Be wary of valuations – ask a number of reputable agents for a professional valuation, as well as a few banks.
Make sure that your property is well insured, and that you’ve made a safe choice.
Control your liabilities where you can by fixing the interest rate on your bond.
Do not sign a personal guarantee on a real estate bond.
Use your own ideas, vision and acumen to add value to your property, find ways to improve on your offering, utilize your space, and reap higher returns.
Commercial real estate is a long term investment where the power of compound growth can really come into play, so aim to never sell, but to slowly increase the number of your passive investments if and when you can.
Property investment can be tax efficient, and certain maintenance costs can be claimed for tax purposes.
The fewer voting partners you have the more likely is it that your project will succeed.
Communicate well with your team and tenants as there will be issues that need resolution – and aim to find win-win solutions when you do go to battle as they will almost always be cheaper than litigation.
Have worst-case scenario plans up your sleeve – you never know what may happen.
Never get complacent – always work on adding value to your property and improving the environment for your tenants and keeping them happy as that way they will be less likely to leave – and if they do, it will be easier for you to find new tenants.
Balance your portfolio – and work with a knowledgeable planner to do so.
Interesting thoughts. What to do? In the end it boils down to the size of the investment you are willing to make. For many people crowdfunding will certainly be the only viable option and hopefully a worthwhile step into a big player’s world.
