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.

Why Not Take Advantage of Record-breaking Incentives?

THE 2020-21 FEDERAL BUDGET introduced a number of new, temporary measures. The focus is to help boost the Australian economy out of this pandemic-induced recession, drive investment and to create more jobs. 

This budget announced record-breaking incentives that are now available for businesses located Australia wide.  [Read more…]

The Rapid Recovery Should NOT Come as a Surprise

YOU MAY RECALL back in May and July, I foreshadowed a quick recovery would occur – as soon as we emerged from lockdown.

You see, what we’ve just been through, is a medical crisis with financial implications. NOT a total financial collapse – like we had during the GFC.

As such, “Demand” didn’t disappear … it simply got deferred. And you’ve already observed that with consumers now engaging in “Retail revenge” – as depicted in the graphic below (AFR, front page: 3 Dec 2020).

During the pandemic my clients seemed to fall into two camps:

  • Those who feared a total collapse, with a prolonged recovery.
  • Those who listened and saw the opportunity to secure a good property, while the market itself remained confused.

Already you are seeing eager buyers re-entering the property market (both residential and commercial) – with prices on the rise once more.

Therefore, those who did buy during the pandemic are now having their faith vindicated. And now, the strength of this renewed demand is bringing more properties onto the market.

Therein, Lies Your Next Opportunity

Not all the properties coming onto the market during November & December can be absorbed before Christmas.

Naturally, this will make those vendors somewhat unsettled – because the commercial market doesn’t officially reopen again until February/March.

So, if you are cashed up and able to move quickly … there should be a number of good choices for you early in the New Year.

Bottom Line: What I’m planning to do is compile a list of those unsold properties for my clients. And then, we’ll quietly sift through these opportunities together – to help clients secure several genuine bargains.

If that could be of interest to you … just let me know.

Handy Tool for Commercial Property Owners

COMMERCIAL PROPERTY OWNERS juggle so things every day … from negotiations with potential tenants to tracking income and expenses. 

BMT’s free,easy-to-use MyBMT portal is something every commercial property owner should have in their tool kit – because it allows them to manage their investment and depreciation needs with ease. [Read more…]

7 Handy Tips You Can Use in Your Next Negotiation

IN ANY NEGOTIATION there will always be times when you need to think on your feet. To help you, here are a few tips you might care to add to your Toolbox.

Tip # 1: Treat Negotiating as a Process

[Read more…]

How to Capture a Prospect’s Attention and Compel Them to Take Action

AS YOU ARE probably aware, the basic tools for marketing your property are the Advertisement, the Brochure and the Board.

However, do you realise these need to be treated as merely the gateway to your property’s webpage or the Information Memorandum? Their sole purpose is to capture the attention of your prospects and then compel them to seek further information.

You see, any form of Marketing is actually a 3-step process. [Read more…]

How to Really Boost Your Depreciation Claims

PROPERTY DEPRECIATION is one of the most reliable sources of bonus cash flow – for both commercial property owners and businesses. And site inspections are an essential step to claiming the most depreciation possible. 

When Site Inspectors from a specialist quantity surveying firm physically survey your property, they know what to look for. They ensure nothing is missed and total compliance is maintained.  [Read more…]

Smashing The 5 Myths About Commercial Property

RIGHT NOW everyone is rather confused because of COVID. And what I generally find is that when investors are confused … they tend to do nothing. 

Yet despite the dire predictions of market collapses, that’s NOT what has occurred. Sure, the share market has been rather volatile. However, the property market has basically held up well. [Read more…]

What are Capital Works Deductions for Commercial Properties?

UNDERSTANDING TAX DEPRECIATION lingo can sometimes be confusing – but as an investor, it’s important that you have a good understanding of the depreciation deductions you can claim.

This will ensure you’re getting the most out of your investment property. [Read more…]

What’s the New Normal for The Post-COVID Office?

BEFORE COVID, Australians worked less from home than their counterparts overseas. However, now things have apparently been reversed.

And even though Australian office workers say they’ve been far more productive at home … there is a keenness to return to an office environment. [Read more…]

How You Can Maximise Your Commercial Fit-out Returns as Owners and Tenants

WITH THE RIGHT ADVICE you can achieve thousands of dollars in depreciation deductions on commercial property fit-outs. No matter what the industry you are in, claiming depreciation will help maximise your cash flow.  [Read more…]