If you've read a few of my emails you'll know that I'm all about the cash flow…
Or so it seems.
It's easy to talk about the cash flow because it leads to what I call the cash flow lifestyle…
That's where I tell you about how I go surfing every morning and lead a pretty chilled life.
It's easy to talk about that stuff because that's the sexy side of commercial investing…
…but it's not the only thing I look for.
It's one of those situations where I notice that I actually look for much more than cash flow in a commercial property, but most of what I look for is subconscious…
So I thought I'd delve into what I think are the seven main investing objectives when it comes to commercial investing.
1. Enduring value
the idea that your property will remain attractive even after years of use and changes of tenant.
When you choose a property in the right area, the longevity of your investment will stay rock solid. Obviously, market trends and market cycles happen, but the right property in the right area will be relatively unaffected.
2. Ongoing cash flow
This is the one I usually focus on and really the main reason you would look into commercial property. Good cash flow should provide you with a strong nett return that exceeds the loan repayments. That's where you get the lifestyle and wealth benefits from your investment.
3. Capital growth
Many people think that capital growth for commercial is much less than residential. The truth is that like all investments; some will grow more than others.
I have had properties that have had slow and steady capital growth; others that have shot up in line or even exceeding the residential properties in the same area.
I think its best not to gamble on capital growth.
I look for areas where it seems that there's going to be good growth. But I don't bank on it.There is a way to almost guarantee capital growth, and that is:
4. Manufactured growth
Choosing properties where there is the scope for manufacturing growth is really one of my favourite strategies. This is where I am subconsciously always looking when I inspect a potential property.
“What can I do to this property to increase its cash flow and/or value.” That's the question I ask myself every time.
5. Killer leases
In an ideal world your lease should be:
- High income producing at the correct rent
- With a stable or blue chip tenant
- Or be multiple tenancies
- and have all the right clauses.
This will not necessarily be the case for every lease.. but the idea is to get as close to this as possible.
Ideally, you would have all these factors in place on a property in good repair, and in a good area.
Choosing the right property then becomes a choice about the areas you are willing to compromise on and which you can improve in time.
What are the parts of that equation where you feel happy to proceed knowing they are not perfect, and where do you want to be certain you've got the best deal you can?
And this leads me to the last objective
6. Maxing out your opportunities
In any commercial property, there will be opportunities for you to engage upsides, no matter how big or small the property is.
Obviously, if you have a property with hidden upsides, then you can increase the value of your investment by engaging them.
Other opportunities may come through your accountant and the tax department like doing a depreciation schedule. This will help you claw back a certain amount through your tax.
Talk to your accountant to find out where those kinds of opportunities lie.
The long and the short of it is that the investment property you buy is not the one you end up with. Implement some upsides, the rent increases as per the lease, and you engage tax benefits etc your property will produce more cash flow and increase in value over time and often can help your tenant as well.
Sometimes the difference between an average deal and a great one is just buying it and waiting a couple of years. So get in to commercial and chill out.