Not surprisingly, amazing commercial property deals are not just around every corner…
But neither are they rare as hens teeth.
There are plenty of deals I wouldn’t touch with a 20-foot barge pole, but there are also way more good deals than I know what to do with. Seriously I get sent great deals all the time, and I just don’t have the time or the money to buy them all.
Each deal takes time, so it’s important to weight up each deal with the opportunity cost of missing out on another deal. Usually at any point into I’m spoiled for choice, and it all comes down to which deal I feel is the best one.
If you are just starting out then, you're not going to be in this situation.
Having an abundance of deals available is a result of being in the industry for years and being in the face of every agent in the areas I want to invest in. The other important factor is being ready to invest when a good deal comes up.
If agents call you with new properties, and you’re never ready to go for it, they’ll end up not calling you. They need to see you taking action, even if it’s not with them.
Here're a few common sense tips for being ready to pounce.
First up let me say that there are four factors you need to bring to the table when nailing down a deal: Equity…Debt…Ideas…and Time
If you’re going to be serious about being a commercial property investor, then these things need to be managed at all times.
You’ll see what I mean in a minute…
Let’s rip into it.
Equity – Have you got some? How much can you access at any point in time? Go to your bank and organise a line of credit on your home or if you have another investment property etc
That way you have that money ready and accessible if something good comes up.
If you don't have any equity, then consider finding a money partner for your next deal who does have the equity.
You’ll need to have a contract in place with a very clear exit strategy that’s going to be a win- win for both of you.
Cool, so let’s just assume now that you have that in place (yes I know what they say about assuming but let’s press on regardless)
Given the amount you have available, consider the loan structure.
It’s ideal to build into any load scenario some flexibility for the future – you just ever know what good thing is just around the corner. Also, if you’re already looking at a particular property then go have a chat to one of the valuers at the bank and see if they’d support the kind of money you’re looking at for that particular property.
No point in looking at a property where the valuers think it’s worth less than you need because you won’t get the loan you want, and your plans will fall over.
If you take control of the valuation process and talk them into why it’s worth what you think then you’ll have more flexibility to do what you want.
Also take control of the valuation process once you own the thing. Get a property, make some renovations, increase your rent or get a new tenant and all of a sudden it’s going to be worth more… but the thing is that the more you can convince the valuer it’s worth the more equity you’ll have for the next good thing that comes your way.
When it comes time to applying for the loan get as much information as you can together. Can’t tell you how many times I see deals held up or just plain lost due to all the fluffing around that unprepared investors do.
Get all that info together and once done – keep it all in a place where you can access it quickly next time.
It’s worth talking to your accountant to make sure you’ve got all your docs you could need for an application.
Once your broker has applied, he’ll send you over a big pile of documents that you need to get your accountant to go through to make sure there are no surprises.
You know what they say – the Large Print Giveth and the Fine Print Taketh Away.
Get your valuation done and send that over to the lender to back up your case and chase them up if you don’t hear back in short order.
Keep in mind that cross securitisation is a dirty bank trick that you want to avoid if at all possible. If you can’t avoid it talk to your accountant to see if you can work out a way to wriggle out of it down the track when your finances are more flush etc..
It’s best to keep all your properties separate so that if one ever falls over it doesn’t take the others with it.
The best loan, and the kind you want shoot for when looking at new deals is called a Non-Recourse Finance Loan” This means that the property stands on it own. There’s enough security in the property itself to keep the banks happy that if you default they will get all their money back by taking possession of it.
Sometimes to get a loan like this you have to work with a crappier LVR but for the security of your portfolio it may be worth it. In the long run it means that you know you’re only buying the best investments for good returns and equity growth.
If you can find a property that stands on its own two feet and makes you a good return on investment then there’s little risk and will most likely be a great performer for you for many years to come.
Work with a broker and your accountant to make sure that you have everything you need to get a loan application up and running quickly. If all your information is correct, you have all the possible details and information the lenders could possibly want and know your maximum budget that you could work with based on your equity and the worst case LVR scenario and your best case LVR scenario then you know what you're hunting for and how much room for maneuvering you have.
It's all go from there – as long as you know what constitutes a great deal – but that's a story for another time. (Check out my webinar for that)