We were recently interview by The Leader and questioned about our views on commercial real estate and first home ownership in Sydney. In recent years Sydney property prices have sky rocketed. This has resulted in a lot of first home buyers unable to get into the market.
One of the key reasons we selected commercial retail shops as the foundation of our wealth engine was due to the low maintenance aspect of these shops. In fact the only real major items of plant and equipment that is the responsibility of the landlord to fix is the hot water system and the air conditioner. The hot water systems are typically not that expensive at around $1,000 installed and will last between 8-10 years. So whilst it’s a good idea to understand how old the hot water system is it typically won’t be a factor in your property due diligence. Read more
One of the key things I like to see when buying a retail shop is a long lease. Not only does a long lease offer you security over future rental payments it wins the banks confidence in the asset as it presents with a higher WALE (Weighted Average Lease Expiry). In Engines of Wealth we discuss the WALE of a building as a measure of the lease term left to run. Read more
In my opinion Depreciation is the secret sauce when selecting retail shops as our wealth building engine. Our wealth building strategy is to create a long lasting income stream that is indexed to inflation and tax effective. Read more
A guarantor must be identified on the tenant’s lease, it could be the tenant or a friend/relative. A guarantor should be a person that has suitable assets to provide security over future rental payments. The subject of a guarantor is not only an important consideration at the time of purchasing a property, it is also important when a tenant has decided to sell their business or assign the lease to another party. Read more
PROPERTY SEARCHES DURING DUE DILIGENCE
I can safely say that the most important task your solicitor will conduct during the shop purchase process is due diligence, that is to ensure the asset you are buying has no encumbrances, will not be impacted by caveats, zoning changes or future government acquisition. Thorough due diligence is achieved by performing a series of statutory and non-statutory searches on the property you are buying. Each search has a specific use from ensuring the person selling you the property actually owns it, to checking future road widening will not encroach on your property causing it to be acquired by the government. Read more
It would be a nice world if everyone did the right thing at the right time, for retail tenants that means paying their rent on the 1st of every month, like clockwork. Unfortunately we do not live in such a perfect world and you may come across a tenant that has poor cash flow and believes it’s OK to use you as his bank and is regularly late in paying the rent. Read more
As mentioned a few times in Engines of Wealth, I own seven Hairdressing salons and would gladly have more, they make dependable tenants. With that many hairdressing salons in my portfolio I am keen to learn more about their business, so I interviewed a local Hairdresser/Barber to gain greater insight and improve my investment calculations. Read more
In Engines of Wealth I discuss at length how to interact with real estate agents from a buyer’s perspective, but when considering them as a tenant and agencies are one of my preferred tenants, there is a twist. When considering the viability of a real estate agent in your shop first you need to ascertain if they are among the 90% that sell residential properties only. Remember the catch-cry “Location, Location, Location”, all areas are not equal and if your shop’s neighbourhood is not providing attractive prices or has too much competition then a real estate agency may struggle. Read more
A step-by-step guide to building a commercial property portfolio that leverages your savings to create a long-term engine of wealth.