Where Could Your Cashflow Be 12 Months from Now by Investing in Commercial Property?
by Mish Daniel | Free Information
Understandably, many people are worried about the increase in interest rates, but the picture is not as bleak as you may think. Despite the rising interest rates, you can still earn good returns in the next year. If you have the money available, you should take advantage of the current investment opportunities.
Renay Thomas joined us in our latest Online Event to share her wealth of knowledge regarding commercial investment and to tell you why now is a great time to invest. She is an asset manager and experienced industry expert here at Revolve Commercial who specialises in property management.
Renay has seen firsthand the return on investment for commercial properties that she’s invested in. She knows how to make smart investment choices (even if you start small). And she can show you how to make your hard-earned cash start working for you!
Listen to the full conversation below, or keep reading. 💡
Is Investing in Commercial Property a Good Idea?
Although the current interest rates are high, buying a property is still a good investment. This is because, although the interest rates may go up in the future, the asset prices usually go down slightly, and you could benefit if you buy now instead of waiting.
There are other factors to consider as well. For example, the global labour shortage is making wages go up quickly. Even if the interest rates rise in the future, your income will likely keep pace and make it easier for you to afford your mortgage payments.
By taking advantage of current market conditions, you can get a higher return than if you wait until the market has already shifted.
The Advantages of Investing in Commercial Real Estate
The commercial real estate market has tremendous potential and offers investors numerous advantages.
It’s an incredibly reliable source of income, allowing investors to generate steady cash flow through rental payments on long-term leases. Additionally, as it is typically a long-term investment, investors can benefit from the asset value appreciation as markets become more stable over time.
Commercial real estate has always been a more lucrative investment than residential properties. Because commercial buildings can be repurposed more easily than residential ones, and people who rent commercial space tend to take better care of it (since their livelihood depends on it).
Commercial buildings can also be repurposed more easily than residential ones, giving them more potential value in the long term. There are many ways to create equity in commercial property, and you can charge more for higher-grade tenants while residences cannot. Medical and other similar leases are usually longer than others, meaning their income is more stable.
Pro Tips to ensure your Commercial Real Estate is Rented out
When investing in commercial real estate, it is essential to know what to do to ensure that your property will be rented out. Here are our best tips:
- One of the first things is ensuring your tenants are happy. You can do this by making sure that the little things are fixed. Often, it’s the little things that matter the most.
- Look for opportunities where you can add value to the property. It will increase the overall price of the property.
- Be open to a different type of customer coming in. For example, a hairdresser or beauty spa is typically set up to attract medical businesses – because they have the plumbing and infrastructure required for medical procedures.
- It is up to you to understand everything clearly before investing in a property. Carefully look at the lease.
- The team you work with has a significant impact on your success. Getting a property manager on board when you buy the property means you have someone in your corner with experience who knows what to look out for and what questions to ask. The real estate agent works for the seller, not for you – and may only tell you part of the story.
- Commercial real estate is a long-term investment, not a short-term one. History shows that commercial real estate has performed better than any stock market. Investing now might be painful in the short term, but it will pay off in the long term. It would be best to look at your rates over a long period (at least ten years).
- It would help if you had a financial buffer, so don’t spend everything you have when you invest in commercial property – keep some aside for a rainy day.
A Practical Example of What a $400,000 Deposit Could Produce in a Commercial Deal
The calculation below shows how it’s possible to earn $30,000 cash flow with a deposit of $400,000 (for a $1,000,000 property) using an LVR of 60%.
Loan-to-Value Ratio: The Loan-to-Value Ratio (LVR) is the amount you’re borrowing, representing a percentage of the property you’re buying. The bigger your deposit, the lower the LVR will be.
Using the same calculation using an LVR of 70%, your cashflow will be $16,667.
Cashflow Case Study – Crocodile Crescent
Crocodile Crescent is one of the many properties we’ve worked on in the last few years that we’re delighted with. It’s a commercial property in Australia, which we secured at a purchase price of $650,000 after negotiations and hard work from our team.
We liked the company, and the location was ideal (in an industrial area with a lot of demand for a property). You could add more floor space to the mezzanine floor if needed, and the gardens were easy to take care of. The building was close to the airport and had truck access (vital for industrial buildings). The numbers were good for an entry-level property.
The client was pleased to earn a cash flow of $26,027 on this property.
Remember, there are always pros and cons to every property you buy. That’s why it’s a good idea to have a buyer’s agent to help you find any red flags and solve any problems that come up.
Head on over to our website for more detailed case studies – Revolve Commercial/Case studies.
If you’re looking for a reliable and profitable way to invest your money, consider putting some into commercial real estate. With its many advantages, it’s an investment that can help secure your financial future for years to come.
If you have any questions – book a no obligation 15-minute chat with one of our experts at Revolve Commercial. In this call, we’ll address your questions and map out what your potential next steps are to growing your wealth portfolio.
📞 Don’t wait – book your free call today.