Let’s face it – 90% of investors avoid vacant properties. They think the risk is too high.
So, for beginners to commercial investing, this is exactly what I recommend you do…
It’s better to set yourself up for a win by buying a tenanted property with good returns.
While it’s true that the risk and the cash outflow can be high, you shouldn’t automatically discard a vacant property.
Because, it can be a massive opportunity if you get everything right.
With that in mind, you should still be careful when considering a vacant property. It’s all about mitigating risks and boosting the chances of turning a profit.
To help you with this, here are some tips you should follow.
- Work Closely with a Valuer
The first step to finding an excellent vacant property is getting an accurate value. You’re going to need a competent valuer for this.
However, many investors are hesitant about working with a valuer. Not least because a valuation can be quite expensive.
But if you look at the big picture, you’ll see that it’s worth it. If you’re paying hundreds of thousands of dollars for a property, forking over a couple of thousand for the valuation isn’t that much.
Plus, you can always ask for a phone valuation, which is usually faster and cheaper. If you decide to go down this road, make sure that you get all the relevant data.
It doesn’t matter how you approach the valuer, as long as you do it. They can give you all the information you need and tell you if buying that vacant property would be a good investment.
- Crunch the Numbers
In terms of numbers, a vacant property isn’t any different than a tenanted one. You still have to get the relevant figures to reach a deal you’re comfortable with.
For a tenanted property, the net rent is an important number to learn.
Needless to say, this isn’t possible for a vacant property. For this reason, you need to arrive at a realistic rent figure based on what’s happening in the area surrounding the property. You need to come up with an accurate estimate you can use to calculate the cap rate.
After you get a cap rate you’re relatively confident in, compare it against those of similar properties in the area. In doing this, it’s best to contact a few agents and ask them for the numbers. They should also give you the data about lease-up terms, another thing that’s important to have.
Lastly, you need to take a close look at the additional costs. For repair and refurbishing, you can shop around for quotes from builders. You also need to include marketing costs and agent fees, which you can discuss with the agent directly.
- Start Low
When presenting your offer, it’s always best to start low. For the buyer, that’s a good starting point to negotiate the price.
Also, remember that you can negotiate the terms. You can ask for more favourable deposits, additional features, rental guarantees, and such.
So that you’re not wasting anybody’s time, however, you must base your offer on realistic numbers.
In the following post, I’ll talk about a few useful negotiation tips that have been proven to work.
but in the meantime.. don’t chuck out all vacant properties from your search…they could be amazing deals, you just need to know how to assess it and make sure you can turn it into a winner.
Sign up for my webinar to learn more about finding a good vacant property.