The 3 Growth Levels Of Commercial Property And The Action You Need To Implement Them.

There are a couple of different options to look for when it comes to commercial property.
No, I'm not talking about office vs. industrial etc

I'm talking about properties you can do things with and those you can't.

I was looking around at a few potential properties to show my students the other day, for example, and I found a shop in Coolangatta which had one of those chain coffee shops in it.

The shop had a ten-year lease with another ten-year option on it. Amazing long term investment. It also had a 5% annual increase built into the lease, which at the time of writing outstrips CPI.

But you can't to anything else with it. It is what it is, and it's going to stay what it is for at least another decade.

It's what I like to call a “Set and Forget” type property.

It will increase in value over time, and it will bring you in a stable income for the life of the investment… but that's it.

The next step up from this in terms of growing your investment are properties where you may be able to do a little work on them,
You might renovate, or do some improvements on the property and as a result, attract more rent. More rent equals a higher property value that is a quick way to improve the value of the property.

There have been times when I've bought a shop, and there has been space out the back to build onto the shop or add storage sheds, or extend an upstairs apartment, etc

Options like this, again, will increase rent, or add more rentable doors, increasing the value.

If you buy a large shop for instance or a small shopping center with several shops on one title, then you may be able to strata title the shops meaning each shop now has its own separate value…

3 shops valued at 500k outstrips 1 big shop valued at 900k, and 3 rents will greatly add to the value of the property since it will make your income more stable. You can have one vacant and it won't kill the investment, just slow it down for a time. You've diversified your income.

The last opportunity is one where you have a rentable door, or more, but there is a greater opportunity to develop the site.

I have talked about one investment in Bondi which, while is a great little earner in its own right, has also now, due to planning changes in the local council, has the possibility to build a multi-story apartment building behind the street level shop front.

upsidesObviously this goes beyond just buying a high yield commercial property and into the realm of developing but given that it's still all on the same block it is the highest value use for the land.

What was once just a shop with an apartment upstairs is going to increase in value many many times over.

When I am looking for new properties to invest in one of the main things I look for are properties that have scope or potential for development.
You don't have to implement that potential straight away. If the property is bringing you in a good yield from the word go as I teach my students to look for, then that potential can just sit there waiting until you are ready to take action on it.

Most owners and investors have no idea of the possible upsides you can create in commercial property. They are literally blind to them and don't realise the gold mine available in some properties, which is why I spend so much time walking my students through the many potential upsides, what to look for and how to implement them.

It's a real eye opener for many and life changing for all.

Comments 5

  1. Hi James. I am very interest in signing up for your course. I am currently committed to two small resi developments (duplexes). Upon completion I was considering purchasing two more blocks with dwellings for future development opportunities. After listening to your podcasts, I’m thinking of moving forward with commercial instead. If you are still accepting students at that time (twelve months from now) I will definitely join your course. Kind regards, Hahn. 0400800808.

  2. G’day James,

    Great post. An idea for a deal review would be a recent commercial property you have purchased and upside you have taken advantage of. Real deal’s always get me excited.



  3. Hi james, I love the Idea of owning commercial property, I have owned one shop in the past but only kept it long enough to enable the sale of my business, buyer wanted the lot so we sold it all. We did make a profit but should have kept it longer.
    My problem now is lots of equity no ability to repay any extra borrowings i.e.,cashflow have my own SMSF, etc.
    William Frew

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