Most people buy commercial property as a long-term investment. They buy for their consistent high yields as well as for good capital growth over time.
That's certainly how I teach my students to buy good commercial properties.
That being said, we've all heard of people buying run down old houses, doing a quick reno and selling them off again for a profit.
That's how I got started in real estate many years ago…
…Buying old houses and flipping them.
So how does that work in the commercial space? And can that be used as a short-term commercial strategy?
Well… Yes is the short answer.
If you've got a bit of money behind you, you can easily find properties able to be improved, and then on-sold for a quick capital gain.
On the one hand, all the same, rules apply.
You could ask for a really long settlement so you can renovate before you even settle. You could ask for settlement conditional upon getting new tenants (assuming that the place is empty and needs a fix up before you can get someone in)
Typically fixing up a place and breathing some new life into it will improve its appeal and have a much better chance of improving the cashflow.
So, What are your Options?
There are various ways you can do this. But the simplest strategy would be to buy a run-down property and renovate it.
Alternatively, you might also be able to find a property with a lease that does not reflect current
rental. Renegotiating that lease would lead to a higher rent, boosting the value of the property.
Longer leases and better-quality tenants will always make a property worth more.
Making the tenancy mix more appealing tends to attract better tenants, and brings in higher rents.
If you've got vacancies, it doesn't hurt to do some prospecting with businesses you want to have in there or business types you want to have in there.
Simply spotting opportunities in improving neighbourhoods — such as inner-city suburbs enjoying a growing number of upmarket residents — is another good short-term strategy.
Many suburbs having a resurgence or becoming more popular will start improving in the housing long before the shops get improved.
That's a good time to go in and spruce up a few shops bringing them in line with where the suburb is heading and cashing in on the capital growth of the area as well as the capital growth caused by your improvements.
With experience … you might look to buy vacant buildings, fix them up or repurpose them and then, lease them out.
In my course, I talk about some tricky ways I've found tenants in a very short space of time using some unusual methods.
Using a little imagination, you can easily discover ways to completely change the use of a property — turning a warehouse into a restaurant, for example, would boost its value or an old shop into a spunky new cafe.
In a country filled to overflowing with good cafe's and coffee houses there never seems to be any shortage of new people wanting to open their own.
I've even heard of someone buying a carpark on a very long lease, subject to tenancy and after a bit of a fix-up and a fence were able to put a car yard in as a tenant.
This tool the property from a flat bit of land earning nothing to a fully fledged commercial venture with great cash flow.
Of course, to my mind, I would still look for a way to keep the property. Getting a heap of cash is great if that's what you need, but getting long-term cash flow for years to come is more my style.