5 Handy Negotiating Tips When Looking to Buy Commercial Property

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…]

5 Tips to Maximise Your Tax Benefits With Commercial Property

TAX TIME FOR COMMERCIAL property investors can often be complex with many factors to consider, including property depreciation. 

To help you get the most out of your commercial property, here are 5 tax tips on depreciation from BMT Tax Depreciation. [Read more…]

Your Due Diligence on Commercial Property

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…]

How to Conduct In-depth Investment Analysis?

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.

There are about 20 Key Items involved.

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:

  1. You can’t make accurate estimates that far out, but more importantly …
  2. It spreads your acquisition costs (stamp duty, legal fees, etc) and your selling costs (commission, advertising and legals) over a much longer period.

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.

Why the Short Timeframe?

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.

Depreciation Tips for Commercial Property

UNDERSTANDING COMMERCIAL DEPRECIATION can sometimes be difficult, but luckily you are able to get some expert advice right here from the BMT team. 

And the good news is … you don’t need to know everything. That’s why you engage a specialist – to help you claim the maximum deductions. [Read more…]

Your Key Steps When Packaging a Deal?

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…]

How Important is it to Have An Investment Strategy?

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…]

Should You Engage a Property Manager?

AS YOU CAN IMAGINE, this is a question I often get asked.

So, let me perhaps start by saying that with all my properties … I, personally, engage a skilled property manager.

And people then ask … If you know so much about commercial property, why don’t you manage the properties yourself?

The answer’s fairly straightforward – as there are basically 4 reasons … [Read more…]

For Your Business: Is it Better to Rent or Buy?

CHOOSING WHETHER TO buy or to rent a Commercial property can often be a difficult decision. When you buy commercial property, you’re purchasing it with cash or loan proceeds. And when you have paid off the loan, you own the property outright. [Read more…]

Do Warehouses Make Good Investments?

RECENT RESEARCH SUGGESTS we are going to need 490,000 m² of new warehouse space per annum over the next couple of years – just to keep up with the current rapid consumer demand. This is the equivalent of about 80 football fields! 

But do these big sheds make a good investment for those looking to invest in commercial warehousing?  [Read more…]

Let’s Look Behind the Inflation Curtain

DESPITE THE RECENT new Omicron variant, consumer demand is surging against the backdrop of labour shortages, supply chain blockages and recent price increases.

All of this is causing confusion and some concern. And pundits around the world are detailing strong Inflationary pressure – which usually means interest rates are likely to increase, sooner rather than later. [Read more…]