If you are looking at commercial property in the lower price range one of the types of property you will find a lot of are properties that are already strata titled… They might be offices or single shops in a larger building and you are just buying one of them.
These tend to be more set and forget type properties because they have already been divided up in the building and usually there are few, if any upsides. However they will be cashflow positive (if you buy the right ones so you would simply buy them for long term income or just to get into the market.
When you look at properties like this you need to look for other things that you might normally look for when looking at commercial property.
For instance if you look at strata titled office they will often come with a car park… two car parks is better and make your property worth more… secure parking is even better, where the car parks are in a locked undercover parking area.
It’s also important to look at where the office is in the building. I can’t tell you how many times I go to look at these kind of offices, or even go to visit a business and you walk up the stairs or get out of the lift and you just end up wanting around hoping you’re going to bump into the right place…
There’s no signage, and the office you’re looking for is up two fights of stairs, turn left, walk 50 meters down the corridor, take the 4th door on the right and down a flight of stairs… basically in the worst place in the building.
If you can find ones that are in a cerium location in the building then that’s great…
So now you’ve got to look for the right location geographically, but also within the building.
Take a look around the whole building… is it nice? is it run down? What will you have to do to the office you are buying? But also what will need to be done to the whole building.
Like Strata’d residential units whenever there are strata in pace there will be a sinking fund. If a building is looking a bit run down you need to ask how much is in the sinking fund and why hasn’t the building been painted recently… and find out if it can be etc…
You might find that if you buy and you get the building repainted or the gardens done up a bit that it will increase the value of your property straight away.
One of the big things I always tach my students is to consider how you look at the property:
Who’s in the property now (the tenant) and what kind of people / business are they… Now if they were to leave what other kinds of businesses would this property suit.
Thinking that way puts you ahead of the game in case they do not renew their lease and you need to find new tenants.
The same applies for looking at offices… Who’s going to want this office (or shop) if the current tenant moves out.
The other thing you are going to bump into especially when looking at strata’d offices is vacant possession.
I just seems to see these come up quite often.
When a property is vacant it kind of falls to the investor to work out what the property is really worth. Yes, the agent and the vendor will make up a number but it’s often purely wishful thinking.
Even asking the agent can be trouble for you because they might say “oh yessir we can rent that property out for 40k a year no problems guvnor”
But the question is “is that really a fair price for the rent for that property in it’s current state?”
It might be… it also might not be.
I suggest you go talk to other agents about local cap rates for other similar properties… preferably within a mile of where the one you’re looking at is.
I’ve also gone and poked a cheeky head into the offices of other tenants in the building and asked if they’ve got a minute to chat about the building and running a business in it.
Most people would prefer to have the whole building full… it makes them look like they are in a thriving business hub… nothing more discouraging that working out of a building where half the office are empty…
I just said “Listen I’ thinking of investing in one of the offices here and I’m wondering what you can tell me about the offices here…
Buy’em a coffee and they’ll chat even longer… it’s amazing what information can be leveraged out of a well timed free coffee.
Finally look at as many as you can if this is the kind of property you want to get into. Make a lot of soft offers based on when the numbers reveal.
If your numbers show that all you can offer is say $230k When they are asking $300k that’s ok… I’m not talking about just going in like some skinflint and making a ridiculous offer just because you’re trying to screw someone…
…I’m talking about doing the numbers and being able to educate the agent and the vendor as to why you believe it’s worth what you say…
…And be able to back it up with facts that you can show them.
This can often turn the tide on negotiations and get you a great deal if that’s what your numbers say.