I recently ran a contest from within the members of my Commercial Property Cash Flow Blueprint course. I wanted to hear stories of what people were doing with the information.
I was blown away with some of the awesome stories that came out; the action people were taking and the results they were getting.
I’ll show you some of them if you’re interested.
However, I wanted to break it down to basics…
Because that’s what these guys focused on… They got the basics down, focused on the numbers and did their due diligence.
And they took action on the properties they found. Most people think commercial is complex, and you have to have millions to get involved, and I’m here to tell you that it can be simple and you can get in for a much lower investment than residential…
And the benefit? Instant cashflow, and in some cases, massive, rapid equity gain… So here are the basics to focus on…
#1 – Focus on cash flow positive.
I don’t believe in negative gearing. I believe that even at 100% finance you can find commercial properties that are cash-flow positive from day 1.
This means that you are never out of pocket when holding a property like this and the income goes to fund further investments or a better standard of living.
#2 – Commercial property is all based on the numbers
If you are looking at a property that claims a 7% or 8% return and you’re only paying say, 5% interest on your loan then you know that that property is going to be cashflow positive from the day of settlement. It also means that you can very quickly work out rough figures on any property to know whether it’s going to be worth a deeper look.
#3 – Learn the simple formulas that commercial property is based on
The value commercial property is pretty-much based on the amount of rent collected. Obviously, there are other factors but knowing the formulas used when calculating commercial property value and cash flow will allow you to know the return on any property well into the future.
This also helps you keep things simple when first searching for properties that could produce a good income for you.
#4 – Look in your local area first.
You probably use commercial property every day, whether it’s the doctors, dentist, local cafe, offices, shops etc. Look for commercial property in your local area. Because it’s close it will allow you to become an expert in that area with regards to prices sold, rents charged. If it turns out that your area is not all that great to invest in, you can move on to the next, closest area, and start looking at that one.
#5 – Do some digging with the agents
Investing in commercial property involves gathering all the numbers and quite often all the numbers you need are not on the listing. You’ll need to talk to the agents and know what to ask them to get the information you need to make a decision. Keep in mind that sometimes agents make mistakes and get these wrong. This means that you should never take those numbers as gospel and double check everything they’ve said – this is part of the due diligence of the property.
#6 – When Searching, quickly focus down on the properties which have a Net Rent that will work
The Net rent on a property is the rent you get after all outgoings and running costs of the property have been paid (council rates, maintenance, insurance etc). Quite often in commercial property the tenant will pay those for you, depending on your lease. Net rent does not factor in your mortgage payments. Knowing this will allow you to not only quickly work out what your surplus after your mortgage payments will be but also will help you decide what you can afford to purchase the property for.
#7 – Get some advice about the entity you’re going to invest in
Whether you are going to use your Super, buy in a company name or set up a trust, you need to get this set up before you start to look for a property as all that needs to be ready to go when you find a property so you can move quickly.
As to which type of entity you use, you need to get that information from your accountant and lawyer based on your circumstances.
#8 – Get help with your Due Diligence
Don’t try to do this all yourself. You’ll need to look at the purchase agreement, the lease the tenant has signed, the building itself. Find the appropriate experts and authorities to help you will this. Have a solicitor on board before you start and make sure you have a Rolodex of numbers you can use ahead of time (eg building inspector, surveyors town planner etc). These experts will help you make sure that the property is as it’s represented and you’re buying the property you actually think you’re getting.
#9 – Take the emotion out of the deal
Don’t buy a property based on emotion. Commercial property is very different – it’s all about the numbers. You need to negotiate with ‘ice water’ in your veins and be prepared to walk away from any deal where the numbers are not stacking up. You can always come back to it if things change
One Final Thought – For when you’ve purchased your first commercial (or second, or third) property:
#10 – Use a property manager
Property managers charge a very minimal fee for managing commercial property (less than residential property managers), and this frees up your time for more investing. Let them so all the hard yards while you relax and let them handle it.
Obviously, there are a lot more factors to succeeding in commercial property, and this is just the tip of the iceberg, but it’s definitely worth getting involved if you like the idea of years of consistent passive income.