I live in Byron Bay where it’s magnificent one day, perfect the next and even though I drive a sensible car there are times when the idea of driving a convertible down the road, wind blowing in my… where my hair used to be, sun shining on my face…
…Well, it all seems very glamorous, and Hollywood.
While convertibles are not the most sensible of cars, when it comes to property, sometimes convertibles can be a great idea.
What is a convertible property?
Well what I’m really talking about is “upsides.”
Can a shop you are looking at being chopped into two smaller shops?
Can the apartment upstairs be turned into two apartments?
Can you convert the parking out the back into some storage sheds or an office space with parking underneath?
Can the warehouse you’ve just bought be converted into several shops or an entire shopping mini-mall?
Your catching my drift right? What you see online when commercial listings come up often do not fully describe the true potential of the property.
You have to be able to see the potential of the property through the eyes of an experienced commercial investor… (this is what I train people to do)
You have to be able to look creatively at all the possibilities of a building and an area and see how much you can add to a property or alter a property to add value.
You might start small by simply giving the building a facelift, maybe adding some boxing for better signage. This will make your building more attractive to tenants, and you will attract higher rent.
Remember with commercial, higher rent equals a better assessment when it comes time to get a valuation on the property.
Being able to split a large shop into two small shops will mean that you have two rents instead of one. Even if the rent you collect doesn’t change, the value of the property will increase because you now have more stable rental base (by halving the risk). However, typically halving the size of the space to make two spaces does not half the rents from each.
A 200m2 shop may be $1000 a week, but two 100m2 shops are still likely to be $700 a week or more, meaning that you still have a 40% increase in your rental yield and a corresponding increase in value.
Now you’ve got two shops that can now be strata-titled which will increase the value further.
Add some storage to the back of the property and your rent increases along with your equity, and build an office upstairs with parking underneath and those numbers go up again.
It’s increased the value of the property dramatically without me having to lift a finger.
The caveat to this tale of real estate convertible glamour is that you cannot do all of this to just any property.
It all comes down to choosing the right property, doing some very detailed due diligence and knowing the possibilities and how to make them work for you.
Many of these upsides (and there are many more than I’ve mentioned here) are very hidden. In many cases, the owners and even their estate agents have no idea they are there, so it’s up to you so spot them, do the due diligence and see what you can create.
When you invest in residential property, and you want to develop your property, it all comes down to the council and the zoning in your area.
While that’s the same for commercial property, you need to remember that you are typically already in a residential zone, and the council is often, already predisposed to maxing out the commercial potential of the area.
This means that resistance to your plans of often much less than I’ve seen with commercial zoning possibilities.
Upsides are just one aspect of investing well in this area of property, and there’s more to it that I could fit into one article so make sure you check out my webinar online.