So NAB and CBA have just posted their quarterly commercial property survey. It goes hand in hand with one of my students bringing me a bunch of negative stats about the global economy.
The surveys show the commercial property index rising +17 points. Overall improvement led by the hotel sector ( I've covered this in a previous article). Retail confidence is down and lots of data about the house price index and slowing growth in the home buying sector.
The global economy is showing signs of slowing with the Chinese market down 17% on last year, indicating slowing consumer activity…
Blah blah blah.
You know what all this really means?
Nothing… nothing at all.
Why do I say this?
Because history tells us that it means nothing.
Let me ask you a question.
If the Chinese market index fell 35% and market confidence in retail fell further… are you going to stop getting haircuts?
Are you going to let your hair grow out and become a hippy?
What about this: if all that happened are you going to sell your car and buy one of those Dutch bikes with the massive basket on the front and start peddling everywhere to save on fuel?
Are you going to stop eating bread? Stop buying clothes and start going naked?
Of course not right… the reality is that everyday life will go on.
We all still need the essentials, and if you have done your due diligence on a commercial property properly, then market fluctuations and property cycles will make little difference to your commercial property.
Yes, it is possible that some small businesses will struggle… but have we not talked about choosing the right tenant?
Is it possible that sale may be down on some retail items in a credit crunch? Yep, but remember your tenants are locked into a long-term lease, so poor sales are not going to affect you.
Yes, it's possible that some commercial areas will experience some vacancies… but have we not talked about choosing property in areas that have an already low vacancy rate?
If there;s one thing I've seen more than once it's that during a recession (if that is what these reports are implying) sales of some ‘comfort' items will go up.
People feel the squeeze and go out and buy comfort items to make themselves feel better.
And even when some poorer businesses begin to fail, there are always others that are willing to step into the space they leave.
As I tell all my students: don't worry about what the market is doing, focus on the fundamentals of buying well…
If you can buy a commercial property well, can buy it with a better than average return, and you can develop equity boosts or create some nice exit strategies, then you will have the buffers in place to ride out any fluctuations in the market.
For the most part, if you have bought well and followed these rules then you're not even going to notice whether the retail sector has low market confidence or not…
You'll just get your check every month from your tenant, pay your loan instalments and go out and play with the rest.
Remember the main idea behind the commercial property game, at least, the way I play it, is to:
1 – Lock in positive cash flow for as long as possible.
2 – Grow your equity with a range of strategies I teach…
3 – Rinse and repeat… Refinance and do it again.
I often shake my head at how difficult people try and make it, when the reality is that if you focus on the fundamentals of sound property investment…
…focus on what properties make your numbers work…
Then it can be very simple.
Find a property in your price range…
Check if the numbers work…
Do your Due Diligence.
Implement exit and/or equity growth strategies
I know it sounds kind of glib but fundamentals and fundamentals for a reason. They are the things that work.
And I'd say the same thing if all the indicators were pointing north and saying that the commercial property market was about to boom…
I'd say: “forget the news, focus on the fundamentals.”
A rising market is a fluctuation just as much as a falling market but when you buy with the fundamentals in place… when you choose property which has good hidden upsides to grow your equity using my various strategies then the market may as well be flat for all you care.