3 Crucial Commercial Property Steps
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it's the real estate podcast brought to you by ray white the largest real estate and property group in australasia and welcome to another episode of the real estate podcast available on iheart radio also on google and apple podcasts or wherever you get your podcast from Well, coming up in just a moment, we're going to be talking to Scott O'Neill from Rethink Investing. And it's a good one in terms of commercial property because we're going to be having a look at three of the biggest commercial mistakes that people can make when purchasing commercial property. And we're also going to have a look at that all-important due diligence and three of the most important steps. And to round it off, we're going to have a look at three tips for negotiating, which is very, very tricky.
So let's welcome in Scott O'Neill.
What are the three biggest mistakes people make when purchasing commercial property?
G'day, Scott. G'day. Good to be back. Thanks for having me. Well, it's a Thursday. We've got you back on for Let's Talk Commercial. And firstly, let's have a look at those three biggest commercial mistakes that people can often make.
Yeah. So this is something I've witnessed many times over the years. When commercial investors first come to this space, they are chasing only yields. They've got that number, whether it's an 8% net return or a 7%. They've got this magic number in their head, and that's what they want to hit. I think that's what I fell foul of. The first year I started investing in it, I just looked for the highest possible yield and I didn't look at quality as much. I guess if you're comparing a good quality 6% net yield versus a risky 8% net return, there's a lot more risk in the 8%. And your tenant may not stay there forever paying that high rent. So to novice investors, it's not only about the yield, it's about getting a good quality return, one that's bankable, that's going to keep getting paid
Yeah, sometimes you need to go into the, you know, I guess a better quality suburb, a longer lease. All those other factors come into play. It's not just yield. It's about the reliance on that yield that comes through. So big message for first-time investors that you want the best quality return, not only just the highest return. And the second one, and it's something I've come across lately because I think there's a lot of seminars out there telling people to chase value-add properties. And this is one of the biggest mistakes I see where people come to commercial properties so fixated on adding value to properties, they buy poor quality property in the first place just to add value. And for me, it defeats the purpose because if you buy well in commercial property, you're going to get a fantastic return through natural measures, which is just the high rent value versus the purchase price.
These are going to make you very good capital growth figures as well. If you're buying in a blue chip market where there's a lot of rent growth, yield compression, you're going to be making double digit returns without lifting a shovel. It's just something I've witnessed a lot over the years where people will come, generally inexperienced investors who try to buy a vacant property and trying to fill it. They're just getting too adventurous for themselves. And sometimes that just can cost more money. The vacancies might be longer than they think. Why is it vacant in the first place? These are the questions you've got to ask rather than just looking at a value-add place. So If you're an experienced commercial investor and you're repositioning an asset, that's a different ballgame.
But when you're just trying to get into the market, just consider buying a good quality asset with a tenant already in place and just pay the right price for it and you should do well. And the other one is trying to buy locally. This is like your old school way of investing. It's quite relevant to residential as well. Some people think it's just good to buy a property they can drive past every day. I've never understood that logic because I've spent a career buying properties in all parts of the country.
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