Timing is everything in commercial property and it is often more important than the location.
People usually make their money in property when purchasing. This may be right time for such people, since recession continues to persist in this market.
Many are taking out their chequebooks to get the best out of the market condition.
If you have purchased a property below its market value, it will make your journey a lot easier and more profitable in the future.
With levels of low inflation now, if you make a mistake, it would be a lot harder to recover from a bad buy.
This will lead to missed opportunities called “Opportunity Cost.’
Guiding Factors
Purchasing the right commercial property at the best price requires a number of factors to be in place.
First, negotiate with the vendor. Try to look for vendors who are in need of cash urgently. This way you can also go in with low offers and try your luck at the property roulette table. You may be able to purchase a property under market value and reap the rewards.
It becomes difficult to make money when paying market value for a property, unless you are prepared to get your hands dirty to build and improve the purchased property in a tough market.
You should study the market well by going to property auctions, reading property media releases, and perusing economic reports, which are available on the websites of most commercial banks.
There is a wealth of information on the internet and you could have sound knowledge on your fingertips.
Talk to local commercial agents including bankers and valuers.
This will arm you with current information of the property market and you will be a better-informed investor.
Vacant Property
Purchasing a vacant building is another way of adding value.
However, a word of caution; this requires a good network of contacts and in-depth knowledge of the industry. If you play your cards right, you may be the winner, if the right tenant is found.
Today, it is a formidable task to find funding for vacant buildings but not impossible.
Vacant properties carry their own risk. It is therefore a double-edged sword, so be careful not to be cut with the sword if a tenant is not found on time
You can also put in cash offers to vendors at a lower price, especially to those in need of urgent cash. This way, you can purchase below market value.
These types of unconditional cash offers are worth more in recession times when funding is tight. Therefore, you have an increased chance of finding the right property at the right price.
The Cash advantage
Cash offers usually get you the deal with a quick settlement period of 30 days.
However, make sure that you have the money ready. You may want to syndicate a deal, which will give you the ability to purchase the property without having all the cash available. This will also allow you to split the risk if a more challenging deal emerges.
It is all about cash flow in commercial property, which determines your end-value as a cap rate in the market place. Try to find ways to improve your cash flow before you purchase the property.
For example, you can turn a spare land or air rights on the building to your advantage. You can also consider creating more space within the property.
Billboards are a good source of additional rental, including antennas on the roof of the building. Some telecommunication companies are offering term leases with attractive rental rates. This will of course depend on the location of your property.
Corner Sites
I always look for corner sites, which are more valuable at times and easier to lease, because of the double frontage on the property.
Therefore, you should look at the location, which is also important.
Look for Locations that have good traffic such as fast food outlets. They are usually open in areas where there is growth potential with cafeteria and similar outlets.
To compare values, determine the cap rates along with the square metre rate for the land and buildings with other similar types of commercial property. This will ensure that you are purchasing at the best price.
Look at opportunities and make sure to move swiftly. Sometimes opportunities rush past, leaving you behind. It is therefore important to get on the bandwagon, because an opportunity may not visit you again.
Mahesh Ranchhod is a Director of the Ranchhod Group of Companies based in Auckland. Phone: (09) 3031353 Mobile: 021525569 Email: m.ranchhod@xtra.co.nz
The Group incorporates New Zealand and Australian Companies and Trusts designed to invest in commercial properties and manage them on both sides of the Tasman.
The above article should be taken only as a guideline and not specific advice. Mr Ranchhod absolves himself along with the management and staff of Ranchhod Group of Companies and Indian Newslink of any responsibility or liability that may arise from the above article. Readers should seek professional advice before acting upon any information contained above.
www.ranchhodgroup.com
