It is true, commercial property investing is more complicated than residential property investing. If you miss a simple detail you can easily overpay, if the property becomes vacant you will have to cover the debt repayments and outgoings, if you’re not great with spreadsheets you will need a team around you to ensure all is running smoothly.
Okay, how do we minimise the majority of these risks to position ourselves for the upside in 4 key steps?

1.        Ensure the completion of a solid due diligence period when purchasing a commercial property.

If you are looking in quieter markets this will be much easier to accomplish than where properties are flying off the shelf. Due diligence periods are commonly between 14 days to 28 days depending on the area. This is a broad term to cover every detail of ensuring what is being put forward is the reality of the situation. I’ll go into this in more detail in a future post.

2.        Know your numbers.

What is the net rent? Is GST considered? What are the outgoings of the property?

Examples of outgoings are insurance premiums, body corporate fees, emergency service maintenance checks, rates, land tax and property management fees to name a few. Ensuring ideally, all of these are deducted from the gross rent as they will decrease the net rent. The net rent is the amount that hits your account after all costs are deducted. This number is critical to get right as the price of the property is based on the net rent, as an investor.

For instance, if a property has an advertised $60kpa net rent at a 6% return but, when you unpack the numbers it’s actually $50kpa net after all costs it changes the price from $1m to $833k. This number is calculated by net rent/ expected net yield for the property = Price.

3.        Create A Dedicated Property Safety Fund

Just as one should have a personal emergency fund if unexpected expenses arise, it is wise to consider having such a fund for your commercial property. Especially, if this is your first commercial investment and you are a little nervous regarding its performance.

4.        Mastery Of Your Personal Income Position

Creating a savings rate safety net when purchasing a commercial property is also a great idea to de-risk the investment further. By this, I mean having a high monthly savings rate in comparison to your potential debt and outgoings obligations if the property becomes vacant.

For example if your property were to become vacant and the debt plus outgoings were to cost $3,000 per month then having a household savings rate $4,500+ per month would ensure the risk to you is minimal and you'll be in a strong position to negotiate with your future tenant.


If this is a space you are interested in and would like help in acquiring a commercial property or building your portfolio you can contact me directly on LinkedIn or email me at support@propertybuyersassist.com.