How to grow your commercial property portfolio
You've started investing in commercial property but want to go to the next level.
While some investors will stick to only one or two properties in their lifetime, with record low interest rates and great opportunities in the market, you have a rare opportunity to grow and accelerate towards your wealth goals.
Here’s how to go for growth.
1. Level up your strategy.
If you want to go to the next level, you need to invest more in your strategy and carefully consider the long-term game. Get super clear on your goals and objectives, and what the way forward looks like. Are you aiming for properties with positive cash flow or high capital growth, or both?
Know your risk tolerance, and how you will secure more properties without falling into major debt that you can’t service. Determine how you will leverage your existing properties to make more acquisitions without having to part with too much of your own cash.
2. Know your numbers.
Get valuations to understand the value of the property/ies that you currently have. Review your financial situation, including your cash flow and position, with your accountant to determine whether you’re actually ready to take on extra properties and ongoing costs.
Understand your borrowing capacity with your finance broker and your ability to make repayments. With the easing of lending laws (from March 2021) and the onus now falling on the borrower to ensure they can make the payments, it’s even more important for you to be honest and accurate with your capabilities.
3. Know the trends and data.
Where is commercial property heading? Where are the opportunities? Look at the types of properties in high demand and the locations drawing in tenants.
Currently as we transition into a post pandemic world, industrial, storage and distribution facilities, non-discretionary and convenience spaces, and data centres are thriving. A combination of growing remote work trends and increased infrastructure projects and transport accessibility is also seeing more investors decentralising and exploring regional areas or the city outskirts.
Also ask the question – what specific features are tenants looking for in a property? For example, right now, many businesses are seeking ‘smart’ workplaces that are safe, secure, collaborative and flexible.
Understanding these factors can help you secure the right property and also reveal opportunities to increase the value of your properties. Renovating, upgrading and repositioning your property to suit the changing needs of tenants will lead to increased rent, increased value, and greater equity.
Finally, if you already have multiple properties, expert analysis and data may reveal you’re carrying dead weight. We all know how difficult it is to let go, but sometimes selling and cutting your losses and disposing of what is called non-core assets ensures you are always positioned well to move on future opportunities. However, always seek professional advice on what your best move is.
4. Buy at the right price.
Knowing what's a fair price, and negotiating, is critical.
The ideal scenario is to buy low and eventually sell high, so ensure you’re aware of the property cycle and looking at properties that are currently low in the market but show great potential for the future.
Once you’ve found the property, don’t be afraid to negotiate and take your time with the final decisions (this is where seeking the help of a buyer’s advocate can be really important). Stay patient, don’t rush into decisions and avoid regret later on. You could make dozens of offers before you find the perfect one.
5. Don't cross-collateralise.
Cross collateralising is a big no-no, however many investors fall victim to it without even realising. This is one scenario where reading the fine print on your loan is essential.
Cross-collateralisation occurs when you use an existing property as collateral when securing a loan for a second property. It’s complex, inflexible and greatly limits your loan product options, refinancing options and selling capabilities. But the biggest pitfall is the potential to lose thousands and majorly set yourself back. If you fall into financial strife or something serious occurs to one property, you’re at risk of losing all connected properties to pay the one loan.
Even if you take out two separate mortgages for two properties, if you’re using the same lender you may still be at risk. Using cross-collateralisation with the same lender will also make it a lot harder should you want to borrow more.
Unfortunately, cross-collateralisation will also come back to haunt you when it’s time to sell. Selling your properties will ultimately change your loan-to-value ratio, and your lender has huge control over what happens next. You may be forced to reapply for your loans, conduct revaluations, or worst-case scenario, have a portion of the sale taken by the bank or be forced to sell other properties to meet the lending requirements.
But don’t worry, the solution is simple – spread yourself, use multiple lenders when it comes to financing, and seek to obtain non-recourse finance.
6. Get the right advice.
To grow in commercial property, you need to work with the best people. This includes a property advisor and buyers advocate, as well as an accountant, finance broker, lawyer and valuer who should all be experienced in commercial property. Once you have your properties, an experienced property advisor and property management team will keep your investment machine humming nicely.
The team at Broadway Property specialises in commercial property advice and will advocate for buyers every step of the way.
Contact us to discuss your needs. No obligations.
Managing Director, Broadway Property
Director, Broadway Property