CONCERN OVER HIGH INFLATION is what is causing the RBA to continue raising interest rates.
So the real question is … will the latest Budget be responsible for adding to inflationary pressures?
Anyway, let’s quickly pick apart the critical issues of the latest Budget – as far as they relate to Commercial property. [Read more…]
HERE ARE 8 key items which should be on every Commercial property investor’s Checklist.
Between signing the contract and the settlement date, you should always decide precisely what your future intentions are.
Because this will determine the most appropriate vehicle for ongoing ownership.
Is it best to be held in personal names, joint names, a trust or a company? [Read more…]
AUSTRALIA HAS ALWAYS BOASTED a solid immigration rate – to the point, where about 30% of our population has actually been born outside the country.
During the pandemic, immigration numbers fell dramatically. As a result, vital skills shortages emerged among building & construction, hospitality and rural workers.
Over the years, the best-performing countries (where Australia stands out) were generally resource-rich, new-world countries with strong population growth and good record with corporate governance.
The Productivity Commission recently estimated immigration contributed almost 20% of the improvement in GDP per capita over the past 40 years.
Mistakenly, there are some who fear immigration will adversely affect employment levels – by taking jobs from existing workers. Instead, it’s been proven that immigration delivers broad-based improvements in productivity, across all levels of society.
Ultimately, these newcomers bring diversified skills to the workforce, which helps grow the total pie and everyone benefits – by driving productivity and innovation.
With our current skill shortages, immigration has an important role to play – initially, by plugging the glaring gaps in our workforce. But more importantly, by creating growth and improvements well.
Australia has long benefited from the cultural richness and diversity that immigration has given the nation, but we sometimes forget the economic benefits.
Bottom Line: There is no doubt immigration has introduced cultural richness and diversity into our society. However, we should also be aware of the economic benefits across every sector of the market – including Commercial property.
Best wishes …
PURCHASING COMMERCIAL PROPERTY can be one of the most profitable investments you will make. However, there are a few steps you need to follow to help ensure your success.
Understand the local property market and the specific property type you’re interested in. Look at things like rental rates, vacancy levels and the physical condition of the property.
Investing in Commercial property can be more complex than residential. However, if properly handled, you can generally enjoy twice the net return you’ll obtain from residential property.
Consider your overall investment strategy, and how Commercial property fits into it. Consider the property’s long-term potential, and how it can provide you with a steady income stream.
Engage a good property advisor, lawyer, accountant, builder and property manager to help you navigate the process of buying and managing a Commercial property.
There are several different financing options available for Commercial property. It’s best to work with a mortgage broker to obtain indicative approval before finalising the actual purchase.
Diversifying your portfolio can help reduce risk. Investing in different types of properties, in different locations, and with different tenants can help spread risk across multiple investments.
Commercial property investments can take time to deliver their full potential. So, be prepared to hold onto the property for several years. Be patient and stay focused on your long-term goals.
You might feel you’re ready to purchase a Commercial property … but perhaps need some guidance along the way.
If so, you can watch this short video giving you some background to my Mentor Group. There’s absolutely no commitment – but it may just pique your interest.
Best wishes …
WITH A CLEARER OUTLOOK for interest rates, Commercial property is expected to bounce back in 2023. Particularly, with several pundits suggesting the RBA could well start to ease rates again later this year.
There will be some investors, who may initially take a cautious approach. [Read more…]
IT ALWAYS AMAZES me how little importance investors place upon the skills required to put a great property deal together.
They will spend loads of time researching the market and arranging finance. But will too often get emotionally involved, and want to conclude each Negotiation as soon as possible. [Read more…]
ATTRACTING GOOD TALENT is proving to be a real issue for many businesses, with unemployment at a near 50-year low. Plus, one of the major challenges right now is how to actually lure staff back to the office. [Read more…]
THE QUESTION OF Due Diligence is an interesting one.
There are two schools of thought. Some people believe they should undertake all the due diligence investigations BEFORE actually making an offer and finalising the commercial terms of the deal.
There are a couple of issues here – number one is: Due diligence, done properly, costs money. Therefore, my approach has always been not to spend money until you have control of the property. [Read more…]
WHEN IT COMES to in-depth analysis of Commercial properties, it is obviously far more complicated than a simple rating system.
That’s because you actually need a sophisticated piece of software – of which there is a number out in the marketplace.
But you’ll find most of them seem overly complicated … are not very user-friendly … and tend to generate endless pages of output data.
So, let’s quickly run through these various items.
You have the purchase price, stamp duty and acquisition costs (things like your due diligence) all of which need to be included.
You also need to choose your loan-to-value ratio (LVR) and include any costs associated with the mortgage. Plus, your appropriate level of tax, which may vary – depending upon whether the “purchase vehicle” is an individual, a company, a unit trust or your super fund.
You must take into account the passing rental, the rental reviews, the un-recouped outgoings, ongoing management fees, and depreciation. Plus, you have to decide on the holding period and estimated selling yield down the track – which I will come back to in a moment.
Finally, you need to allow for the selling costs at that time; and also the capital gains tax – where you need to include things like your initial cost-base.
Without going into the intricacies of the specific software, what’s important is that you undertake your calculations within a fixed timeframe. And I generally tend to view everything over a 4-year period.
A lot of software packages like to stretch their calculations over 8-10 years. However, there are two problems with doing this:
And that tends to distort reality and make everything look unrealistically attractive.
Instead, you should stick to 4 years – because, if the property does not make sense over 4 years … then you are simply kidding yourself to view it over 10 years – in the hope of making a reasonable return.
As such, my yardstick is an after-tax return of 10% per annum (or better) on your equity, over a 4-year period. Otherwise, you simply don’t proceed with that property.
As you will appreciate, many people might well say: “But I am buying it for the long haul”. And that’s okay.
My reason for four years (and there’s no real magic here) … other than over that period, people can have a change of circumstances. They’ll get married, divorced, posted interstate or overseas – even have kids.
Somehow, there will often be a change in personal circumstances. Therefore, whether you plan to, or not … it is a good idea to have a mandatory 4-year review. That’s why I settled on this timeframe.
You may continue to hold the property longer-term, and that’s fine. But you need to know going into the deal that if (for whatever reason) you find yourself having to sell the property in four years’ time … it is still going to make economic sense. And over the longer term, it makes it a very good deal going forward.
To help with this, I developed my Final Judgement software – which is made available to everyone in my Mentor group. And by using this software, you can calculate what (in technical terms) is called the internal rate of return.
In other words, what annual return will the projected after-tax cash flow represent … as an annual percentage on the equity you invest in the property.
Being “after-tax” is important because that takes account of your relative tax position. And if you have negative gearing, that’s taken into account as well.
Bottom Line: If you are getting a 10% pa or better after-tax … this represents anywhere from 14% to 18% per annum pre-tax … depending on your tax level.
And I wouldn’t have thought that was too shabby.
IT’S ALWAYS INTERESTING to discover some Commercial property investors still feel contracts there’s a need to include a “subject to finance” clause – so they can check whether or not funds will be available.
However, they are in fact approaching things from the wrong angle. You see, you don’t need your finance approved before entering into a deal. [Read more…]
AS IT IS WITH ANY INVESTMENT you make – be it shares, property or collectables … you need to know where you are heading. Plus, also ensure you have a solid foundation upon which to base all your decisions.
So, clearly, the answer to this question is: “Very important!” And probably more so, when you’re considering a commercial property. [Read more…]
