The Investor s Guide For Success With Commercial Property

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2 The Investor s Guide For Success With Commercial Property The 3 Fears When Investing in Commercial Property 5 Dreaded Mistakes to Avoid with Commercial Property 3 Common Misconceptions Causing You to Miss Out 5 Compelling Reasons to Invest in Commercial Property Why you need a Clearly-defined Investment Plan 4 Steps Your Ultimate Success Page 2

3 On a personal note There will be some investors who are new to Commercial Property; and then others, who have been dabbling with it for a while now. Still, there s often an underlying concern that you may not quite have a full grasp of everything to make sure you ll succeed as a Commercial Property Investor. As such, this short Investor Guide is intended to address your fears and any misconception you may have about whether Commercial Property can be as worthwhile, as many people have been telling you it is. And so, hopefully, it will answer most of the queries you ve had so far. I trust you will find it helpful Page 3

4 Chris Lang is a 7-times published author on Commercial Property and CEO of Property Edge Australia which helps investors to source and purchase Commercial Property for solid growth. Having been operating for over 45 years in this field, you will certainly benefit from a depth of experience most investors seldom have. And you can always discover more about how to be successful over and above what s contained in this Investor Guide. Page 4

5 The 3 Fears When Investing in Commercial Property 1. Residential Investors Find the Transition Difficult Fundamentally, this stems from insufficient knowledge and, therefore, proper understanding. And that s where having a trusted consulting team comes in. Some of my most successful clients have been those with little or no prior involvement with Commercial property. However, they were clear thinkers; plus they can quickly absorb and assess the advice being given to them. 2. You Require Loads of Cash to Get Started Again, this is simply not true. Sure, there will always be Commercial properties, which might sell for millions of dollars. However, you can also buy well-leased Strata Office suites for between $350,000 and $700,000 which is more or less the same price you would expect to be paying for an apartment. 3. It s Too Easy to Overpay for a Commercial Property Yes, it is possible for an inexperienced investor to misread the market. That s where obtaining solid professional advice is important. However, there is one simple technique to ensure the price you pay doesn t exceed market value. And right from the outset, you will be shown how to master this. Page 5

6 5 Dreaded Mistakes to Avoid with Commercial Property 1. Buying the Property on Instinct and Emotion Unlike with your family home, buying Commercial property is purely a numbers game either it adds up to a good purchase or it doesn t. Accordingly, there is no room for emotion because your success with Commercial property will depend purely upon logic and reason. 2. Not Allowing for Your Acquisition Costs In addition to the contract price, you also need to allow things like stamp duty, legal costs and borrowing fees along with the cost of a formal valuation of the property. Of these, stamp duty alone represents a further 5.5% of the purchase price. So, I would generally recommend you allow for an extra 8% to be paid at settlement. Mind you, there should be some change from that but it will help you avoid any nasty surprises down the track. 3. Spreading Your Efforts Too Wide Particularly if you re first starting out you should target only ONE type of investment property either Offices, Shops or Warehouses. Because, each transaction needs and warrants your complete focus. It s much safer to become master of just one sector, as opposed to merely being average over many. And I m sure you don t want to have a poorlyperforming property? Page 6

7 4. Becoming an Accumulator of Commercial Property Some people buy some Commercial properties simply because they can, or they just like the look of them. However, the principal reason you are investing is to produce income, and achieve a capital gain. Therefore, if your purchase fail this basic test then you are purely an Accumulator (NOT an Investor) in Commercial property. And as such, you will undoubtedly fail in the longer term. 5. Not Properly Protecting Your Assets Unfortunately, law suits do occasionally occur. Therefore, you should take the appropriate steps upfront to properly shield yourself and your family. Plus, you also need to make sure you have adequate insurance cover. Just ask yourself the following questions to decide if you re protected: What do you have at risk, if you were to lose a lawsuit? Is your home quarantined from your Investment properties? Are the various Commercial investments completely separate from one other so that any legal action on one, doesn t impact the others? Are your Commercial property fully insured? Don t try to speculate, with regard to answering these issues. And it s vital you speak with a competent lawyer to ensure that you are completely protected, if you ever end up being sued. As you can appreciate, this is something I ll need to help you address. Page 7

8 3 Common Misconceptions Causing You to Miss Out 1. Securing Commercial Properties using the Internet is Easy. There are some people starting out in who feel they don t need any professional help with this. But finding a suitable property is only half the task at hand. The other half involves properly assessing the property both physically and financially. Then, you have to package up a deal that s best for you. And this is where having a top consulting team (for the property, legal, finance and construction aspects) is worth its weight in gold. Again, you ll need some help in putting your team together. 2. Commercial Tenants are Difficult to Deal with. As a residential investor, you soon find yourself dealing with the individual personalities of different people. However, as a commercial investor, you tend to enjoy more predictable, long-term relationship with your tenants based upon a proper commercial footing. Because Commercial tenants are running a business from your property, they have a vested interest to keep it looking good. Besides, their lease will require them to undertake (and pay for) any required maintenance. And when the time comes for them to leave, there is also a clause requiring them to make good beforehand. 3. It s Harder to Manage Commercial property. If you choose to manage the property yourself, then you may well run into some costly problems. But that s the very reason why you would engage a competent managing agent. And unlike residential property (with management fees of 7%), your fees for Commercial property will generally range somewhere between 3% to 5% of monies collected depending upon the size of the property involved. Page 8

9 5 Compelling Reasons to Invest in Commercial Property 1. You can Receive Double the Net Return of Residential Property Typically, residential properties will provide you with a 4% to 5% gross rental return each year. From this, YOU need to pay rates and taxes, insurance, maintenance and so on leaving you with about a 2.5% to 3.5% net return, at the end of the year. Depending upon what (and where) they are, commercial properties generally provide you with a 6% to 7.5% rental return. 2. Your Tenants Generally Pay the Maintenance You will find most commercial leases require the tenants to pay the various building outgoings on top of their rental making it a true NET rental return to you. As you appreciate, this is an important difference with Commercial Property. You see if a toilet stops working in an apartment you own, the tenant asks YOU to send around a plumber. Whereas commercial tenants want it rectified quickly; and will often arrange to fix the problem themselves (without even bothering the managing agent) so as not to disrupt their business. Plus, the overall appearance of the property becomes a reflection on them; and as such, they will want to keep the property in really good condition at their expense. Therefore, whether the lease requires it or not, most commercial tenants will regularly repair and repaint the property, to maintain a good corporate image. Page 9

10 3. Longer Leases mean Greater Security Quite often, you'll find that residential tenancies will be on a month-bymonth basis maybe 6 months, perhaps even for a year, if you are lucky. Whereas, a Commercial Property will tend to lease for between 3 and 5 years, and often for longer. That means you will have fewer tenancy changes; a far more predictable income stream; and less redecoration required by you as the landlord. 4. You have Greater Payment Certainty Most residential properties are rented by individuals. Therefore, the rent is generally paid in cash or by personal cheque. And this can often vary in its timing. Because they are running a business, Commercial tenants consider rent as simply another regular expense each month. And generally, this gets set up as an automatic bank transfer and can be specified as such, in the lease. 5. Your Depreciation Benefits are Considerably Higher An Office property will generally provide you with more than twice the depreciation benefits you can obtain from owning an apartment. That means you re able to enjoy a significant non-cash deduction which will greatly reduce your taxable income. In other words, that will be putting more money into your pocket on an after-tax basis. Page 10

11 Why you need a Clearly-defined Investment Plan Investing in Commercial property can be very rewarding. And while it is fairly straightforward, there are certain steps you need to go through in order to gain the most from your efforts. In simple terms, all you basically need do is follow a proven formula which has been designed to help ensure your ultimate success. And as you can see, there are three Phases Before During and after you purchase the property. However it s important for you to progress through every aspect in the sequence making sure you don t skip one along the way. When you obtain the right training, all of this will be fully explained; and it will soon become second-nature for you to implement. Page 11

12 4 Steps to Your Ultimate Success 1. Make a Commitment to Act Simply thinking about investing in Commercial property is not going to help you build a portfolio, and grow your family wealth. You need to confirm to yourself that you are serious. And at least make the decision to begin learning more about what s involved 2. List your Objectives Clearly, this is important. And yet, you may not know quite where to start. To help you, I ve put together the top 8 Investment Objectives clients have successfully used over the years. After reviewing these, you can also download a free App to allow you to shortlist properties, in 4 minute or less. And you ll find the App contains a couple of walk-through videos to explain everything in some detail. 3. Make Sure You Ask Questions Don t merely accept whatever you read, or what people tell you. Always be prepared to ask questions to fill in any gaps, while you strive to build up your understanding. As you ll appreciate, the more in-depth the training material the more you will be challenged, and discover the need to ask questions. However, that means you re learning more (and a lot faster) bringing you that much closer to becoming a successful Commercial property investor. Page 12

13 4. When you find the Right Mentor Learn Everything You Can You ll find a number of people out there, from whom you can learn. However, some will only offer you training material; while others will insist upon an upfront meeting, before they will take you on. And then, there are some others who merely want you to retain them, to purchase Commercial properties for you. The important thing to remember is that YOU are the client. And therefore, only enter into a Mentor relationship once you are feeling totally comfortable. You see, the best Mentors will happily let you sample much of their training material at no cost, and with no commitment. That way, you re able to progress things at your own pace. And only choose to increase your level of involvement, once you feel you are actually ready. Page 13

14 My Guarantee If you decide to engage me in helping you build your Commercial Property portfolio we will work closely together to improve your knowledge, and complete your training. And only when you feel you are ready will we start to source and package up any property deals. Furthermore, I will also introduce you to my trusted consulting team who will help with the legal, finance and due diligence aspects of your purchase. And if I m unable to save you at least twice my fee, as a result of the ultimate purchase price then, you ll be charged absolutely NO FEE at all. Anyway, your next step to help complete the picture should be in Understanding Total Returns for Commercial property. Page 14

15 Thank you I simply wanted to say Thank you for taking the time to read through this Investor Guide. And the most important thing for you to take away is that investing in Commercial Property is not overly complicated. It s merely a game yes, it is a very serious game. But nonetheless, all you need to do is simply understand and master the Rules in order for you to successfully play AND win. As you ve probably gathered by now, I have already put together a number of Investor resources and have made them readily available to on my various websites. If you do need any further help, just feel free to drop me an or just give me a call. But first up, make sure you visit the websites listed below as they contain a whole host of valuable and FREE information you will no doubt benefit from. Happy investing Chris Lang ( ) Commercial Property Made Easy Property Edge Australia Property Briefings Page 15

16 From just a couple of clients Page 16