Warren Buffet is well regarded as the greatest investor of all time.
He’s made more money than anybody else in the world through investing.
Needless to say Warren has a model for successful investing that starts with his #1 rule
“Only invest in things you understand.”
If he understands something he will invest in it – if he does not, he won’t. Sounds simple enough, right?
But here’s why he has that rule:
This rule give’s him the investing edge to get predictable results… and he gets those results through 6 main factors…
Whenever he is assessing a company to invest in there are six factors he looks at to know whether it’s a good bet to invest in that company…
He looks at Income, Expense, Asset, Debt, Management and Insurance.
With data on these factors, he can pretty accurately assess whether to invest in or even buy a company, whether to hold or even sell shares in a company.
These six factors give him the critical data points he needs to know what he can get from any investment deal.
Where else can you find these six key data points? Where else can you control these six factors?
1 – you can control the income by raising rents
2- you control the expenses when you negotiate the lease
3- you control the asset because you can sell it or refinance whenever you want, and if you develop the site further you can grow the value of that asset.
4-you control the debt because you arranged the finance for the purchase
5-you control the management because you choose the property manager or manage it yourself
6- choosing what level of insurance you need is entirely up to you also.
Not only is this a good deal for an investment but it’s also a good deal for business.
Investing your money in commercial property can generate a predictable income which can free you from the need to work and it’s an income that you can rely on for years because of the nature of commercial leases and the length of those leases which is typically 3 years at a time or more.
Additionally you can manufacture growth as you raise rents the value of your building also goes up since commercial property values are calculated from the rent locked into the lease.
If you have chosen a property that has scope for additional building, or development you can also add more value to the property, or add more rentable doors that will further increase the value of the property.
In terms of helping your tenants businesses, a facelift to a property can generate greater perceived value to their businesses. Make the premises more appealing to tenants and their customers, and ultimately your building will attract higher rents because if it.
Over the years, commercial property has often received bad publicity and usually this is because new investors who don’t know what they are doing have invested poorly. Going back to Warren Buffets #1 Rule: They have invested in something that they did not understand.
First and foremost successful investing in commercial property will always come from being fully conversant in the in’s and out’s of commercial property investing. That way you can learn to tell a good investment from a bad one.