Busting The Commercial Property Affordability Myth

I’m walking down the road and I look into a store window and see something that I really like the look of.

I know that these things are expensive… like… REALLY expensive. Probably out of my price range…

Do I…

a) Go in and find out how much it is (knowing that I’m going to be probably a bit disappointed?
b) Walk on, go about my business and do something practical with my time?

What would you do?

Ok, It’s kind of a trick question.

Hint: it’s not about the answer it’s about the attitude.

I find that most “investors” have certain beliefs around commercial property.

If those beliefs are that commercial is too expensive or too hard to get into or too risky… they never step over those self-imposed limitations to investigate whether those beliefs are actually true.

Let me tell you right upfront, they are not.

I recently saw a commercial deal you could have gotten into for around $8,000… that’s it.

It wasn’t an amazing deal and it was not the kind of thing I usually look for so I didn’t start on any due diligence, but if you are just starting out and want to get into property that’s a pretty amazing low entry point.

Every month I look for deals to pass onto my students. There are specific things I look for in a deal so many never make the cut.

But that’s not to say that some of those deals might not be a good deal for someone. I just wouldn’t know because I never investigate further if they don’t meet my criteria.

I can, however, tell you this: I can go back two months later and it’s all new deals I’ve not seen before so either those deals have been taken off the market, or someone’s taken them off the market by buying them.

Over the years I’ve made contact with a lot of agents. These guys now send me deals before they even make it to market so I get to see all sorts, in all kinds of price ranges.

You’d be amazed at how low some of them are.

So while the residential market seems to keep climbing out of reach of some Australians, Commercial still has plenty of opportunities for people just wanting to get into the property game.

The thing people seems to miss however is that if you buy right in commercial you get an instant boost to your income.

Sure, at this level we’re talking about it’s not much… but extra money is extra money right. Would you rather get $100 a week or have to spend $100 a week because of a property?

Of course, the most common argument for spending $100 a week (or whatever) is that negative gearing is counterbalanced by capital growth.

That’s good in theory but sadly it’s not always true… many markets get little or no movement and sometimes the reality is that people could have made more money leaving their cash in the bank.

As I’ve said many times before there is an amazing amount of capital growth available in commercial if you buy the right property… (and when I say “The right property” that’s NOT a function of price…)

Some cheap properties have amazing upsides that can be used to create capital growth.

My very first deal was just 30k but when I engaged one of the upsides it has it got valued at $100 not 9 months later.

Yes, that was 30 years ago but the principle is the same. I (and my students) still use that principle today to buy commercial property, and use those upsides to manufacture capital growth.

There is still organic capital growth that occurs as rents increase over time but just like the resi market, you can’t rely on it… just like you can’t rely on an income from betting on horses.

When you plan to manufacture growth you take charge of your own capital value and in the end, you make a lot more money.

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