great thread bird dog ... i guess what myself, and others thinking about dabbling, are really interested in is the blow by blow of actually looking for the property.
where did you look, what were your criteria's (the big one for a vacant property), what did you knock back and why, why did you choose this one?
i ask because i started looking, and feel overwhelmed by how much is available and need to narrow down a little - although have already ruled out retail atm (subject to change if convinced otherwise).
Hi Lizzie,
Apologies for my tardy response however I’ve been mulling your question for a while and wanted to answer fully it but there are still some aspects of the deal that I cannot fully divulge just yet as we’re still in the settlement phase.
I will however answer what I can so here goes..
I spent a while analysing the different regions (being North, West, South and East) in my town and made my eventual decision on the following criteria.
• Future capital growth. Does the area have any major developments that could positively (or negatively) affect the investment.
• Affordability: I wanted to get into something a little larger than your small (mum and dad) workshop as whilst this area is easy to sell as you have a large audience, it also can sometimes make it harder to lease as a large part of your audience could be more interested in buying rather than having a landlord
• Size: I wanted something that was large enough so that my potential tenant was most likely coming from a previously successful business and was moving because his or her business was expanding. Referring back to the point above, with smaller properties you can tend to get first timers and I wasn’t that comfortable having my very first property swinging in the wind with a new business starter.
• Access: The property needed to not only have good access to freeways etc, but it also had to be on an easily accessible road (EG right at the front door for loading – unloading).
• Vacancy: Perhaps this was different to most but I actually chose the areas first and then started looking at properties (whether they were vacant or not) as they say you can fix bricks and mortar but you can move dirt. What this meant was that most of the stock in my chosen area was vacant. It seemed that any decent properties that had a tenant simply weren’t being sold which I guess makes perfect sense. Why would you sell something that’s ticking away in the background with a nice easy tenant. Very few properties had tenants which forced me to start considering what the bank considered “higher risk”. The upshot of this was that a vacant property is usually worth less than one with a tenant so we could immediately add value by simply installing a tenant.
By spending my Sunday afternoons pounding the pavement for over 8 months prior I knew there was low vacancy in the area by the lack of “for lease” signs coupled with low numbers available on the net.
This also tied into my other strategy on how quickly it would take to find a tenant.
• Growth: I decided on my area by actually taking a bit of a gamble on the future proposed development of major new transport arterial. Whilst this has not been approved (and I’m being a little speculative) I would say this was one of the main driving forces for me selecting this area. Initially I was looking a little further from the CBD but when this property came up, it ticked most of the boxes.
In addition, by selecting an area that was not only closer to the CBD but was land locked it mean that I wouldn’t be competing with all the new flashy wide span warehouses going up further out where there was land still being released.
• Condition. Whilst a newer property provides better depreciation benefit’s I knew that to get into what I wanted and at an acceptable capitalisation rate meant it may be an older style building. The one I chose was owned by a property and facilities management company so thankfully the building (although older) was pretty clean and tidy. EG: Could be used for food production etc..
• Location: We went for something that was closer to the CBD as I took comfort in believing that no matter what the state of the economy, proximity to the centre of all things would never change and if times got tough, at least we would have the very best chance of finding a tenant.
• In addition, a well know member on this forum once stated to me that all their properties were within 10K’s of the CBD which to me sounded logical.
• Industrial, office or retail. The decision for me was simple.
Retail meant less rent but more capital growth and this was at the opposite end of my growth strategy so it was struck off quite quickly. It’s leases are also (IMHO) the closest to Resi and Resi was what I was desperately trying to get away from.
Office: middle of the road when it came to rent v growth and most likely where I’ll dabble a little later but the office market in my town is pretty stagnant and not showing any signs of improving in the short term.
Industrial: This was where I started my commercial interest and was where I kept coming back to. Simple low key leases on building that I could take a broad look at and know fairly easily if it was workable. I also think this is where (potentially) the market is going to improve next (again this is speculative so take it with a grain of salt)
• Plan B, Plan C and everything after that. I am known for being a little bit of a information junkie and although I have made both good and bad mistakes in the past, I can safely say that 99% of them have been after a significant amount of researching and analysis. That way, for me anyway, I know that when I make a decision, I stick by it.
Part of that analysis was having several plans up my sleeve for the property in 5, 10, 15 and 20 years down the track so without going into a whole other thread, I will say that I have other ideas for the property when it reaches the end of its serviceable life.
I think it’s important to have several plans when going into any property as circumstance, economies & environments can change rather quickly and it pays to be on the front foot when they do.
Anyway, that’s about all I have for the moment as my head a little full today. I’m sure there will be further discussion and updates as they come to hand and I’ll be sure to update this thread as they do.
All the best
