Rule #4
The Right Property

Decide … Which Type of Property is Best for You?

As we’ve already discussed, you need to have clear underlying goals. Therefore, you need to decide exactly what you want out of your investment … and be specific:

  • Are you after a lucrative cash flow?
  • Do you want a profitable overall yield?
  • Do you need tax savings?
  • Are you looking for a hedge against inflation?

Knowing precisely what you want will affect your choice of properties. It will also help you to structure the kind of deal that best serves your interests.

But you needn’t be in a tearing hurry.

There is a full menu of properties for your consideration. And so, don’t just settle for an investigation of residential properties in your own neighbourhood. Such a limited vision denies you the full range of possibilities.

Take into account the current health of the wider global scene — the economy, interest rates, share prices, and so on — and analyse how they affect prices of investment property.

In the end, these do have an impact on the general investment climate — although real estate prices are not wildly volatile; and their recovery, after times of downturn, is faster. Historically, real estate seems come out on top.

The Retail Sector

Most people are familiar with Retail property.

Shops and blocks of shops along ‘strip centres’, will generally provide you a profitable return on the capital outlay … as long as two important conditions are met:

  1. Good Location; and a
  2. Sound Tenant-mix.

The Location is vital because it affects both the retail sales turnover (to which rents are related) and capital appreciation.

If, for instance, you decide to buy a single shop, look for a street where the local council is doing beautification work (putting paving on the footpaths instead of asphalt, erecting benches and seats, planting shrubs and flowers) creating an attractive environment.

Then, if you see a chance to move in and buy a shop, renovate it and put in a good tenant … grab it.

On the other hand, steer clear of a location where tenants maybe moving out — because a new supermarket has just opened nearby.

However … if you can pick up a group of three or four shops cheaply because the area is taking a dive, you can create a professional service centre with an accountant, a firm of lawyers and even a vet!

You’ll find Property always provides openings for lateral thinkers.

The Tenant-mix is important because there must be sufficient variety of retailers to attract good shopper traffic. However, not too many retailers to be in such direct competition, as to damage each other’s viability.

Beware of too many “parasites” — banks, building societies, travel agents and (yes) Residential real estate agents — who move into a location, simply because the retailers are creating excitement and attracting shoppers.

They want to live off the ‘shopper traffic’; but all they do is create ‘dead spots’ and push up rentals, beyond the reach of the traditional retailers.

Selecting a shop for investment also requires you to look into parking facilities and the level of pedestrian traffic enjoying the benefits of retail competition. A good rule of thumb: Always try to get as near as you can to the middle of where the action is.

The Industrial Sector

The Industrial property has really moved ahead.

The growth of small service businesses over recent years has boosted the demand for small factories and showrooms — particularly in areas close to major regional centres.

Factories require very little maintenance and enjoy low outgoings. Plus, provided sufficient care is taken to choose a good tenant … they could well suit the ‘let and forget’ investor.

A point to note: Wherever possible, Investors going into small industrial properties should make sure there is enough room for expansion, as the tenant’s business grows.

You don’t want the success of your tenants to be constrained, by not having enough space to expand.

The Office Sector

Many investors find Office accommodation particularly appealing, because it allows you the full spectrum of opportunity … from single shop-front offices, right up to multi-storey city complexes.

And as mentioned in an earlier lesson, a whole new field has opened up with smaller “strata-titled” offices … offering you an entry price as low as $500,000.

In recent years, new and refurbished office space offered on the market has been consistently absorbed. And the demand is still there: In Melbourne alone, companies take up around 80,000 square metres of office space on average every year.

Later on, we can look at your spread of property investment options more fully. But what’s important for you is to … Look at the full menu.

A relevant tip: In the early days of building your property portfolio, do not roam too far and wide. Stay within your Buying Radius — and that is roughly within a of 15-to-20-minute radius from where you live, or your property manager’s office.

In other words, stick to nearby properties until you have a fairly large portfolio. And by then, you will have built up a solid bank of experience.

Choosing Your Consultants

Even amateur investors need to adopt a professional approach to property investment. This means putting together your team of Consultants.

  • A Property consultant, who’ll act for you during the acquisition process, and help set up your ongoing management;
  • A Lawyer, who specialises in property;
  • A good commercial Finance Broker;
  • A quantity Surveyor, for depreciation;
  • A good Accountant; and, as you hit your straps; and
  • Possibly, a competent Builder.

When you work with good consultants, they become your willing and loyal advisers — giving you the advantage of all their experience, knowledge and expertise.

Finally, the success of creating a sound portfolio is making sure you look at enough properties … so you’re able to recognise a good opportunity.

Quite often you don’t have enough time to do everything yourself. Therefore, work with your trusted consultants — it will certainly pay dividends.

Your further Check List

  • Create a detailed set of written goals.
  • Difficulties often provide fresh opportunities.
  • Always be searching for improving localities.
  • Be prepared to PAY for expert advice.

For an all-round view of things, you might care to explore in more detail …
How Investing in Commercial Property Really Works

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What you covered in the previous RULES …

#1 Decide on Your Investment Plan

#2 Understanding Your Investment Profile

#3 Hazards You Need to Avoid