EPISODE 10: Putting It All Together - Property Inc

[ Podcast Transcription ]

This is the Commercial Property Investing Explained Series, a free 10 part course brought to you by Steve Polisi. Find out how commercial property really works and start investing like the pros. Your education starts now.

Welcome to the Commercial Property Investing Explained Series with Steve Steve Polisi, I’m your host, Andrew Bean, and I’m here with author of Commercial Property Investing Explained Simply and founder of buyers agency, Polisi Property. Steve Polisi. How are you mates? I’m awesome, Andrew. Last episode, how are you doing?

Um, good mate, good last foundational episode for the series we got here. It’s been fun. It’s been actually been really, really fun. How have you found it? Yeah, I’ve really enjoyed it. I’m sure we’re going to have a few more specific kind of episodes where we’ll go through things like the value adds and things like that, but hopefully some people got some come some stuff out of it.

I really just wanted like a nice complete set for people to learn off where they don’t have to go pay 10, 000 for a course. They can get their head around everything and get some free resources and hopefully learn a little bit along the way. Yeah, well, that’s it, man. Also, everyone knows this is episode 10.

This is our last foundational episode, and we’re going to be wrapping up the foundational episodes after this. You know, as Steve said, I’m sure that Steve and I will do some other kinds of content on the podcast and other kinds of content in the future, but this is basically the last one. So it’s a little bit of a happy, sad moment.

Yeah, it’s been, it’s been fun. Well, Steve, I think this is probably also a good time to announce that you have recently become. A two time author and you’re releasing your next book. Can you tell us about that? Yeah. Who would have thought Andrew, eight years ago when I was an engineer, I’d be releasing two property investing books.

I can barely speak English, let alone release books, but, uh, no, it’s been, it’s been good. But my new book is Residential Property Investing Explained Simply. This has already been kind of received really well from all the major retailers. They’ve just done a bulk buy. So it’s going to be in every major bookstore in Australia and all the airports, which is really cool.

So as a bit of a thank you for listening as well, I know I’m giving the commercial book away for free, but if you want to use the same code, go to my website, www. policeyproperty. com and use the code word podcast. There’s a little bundle by you can do, or you can buy the book individual, get the book individually and get a copy of the residential one.

You might kind of be wondering why I’m offering a residential book on a commercial property podcast, but the residential market is symbiotic with the commercial market. Like you can’t have one without the other. So by understanding why residential properties grow, you can also understand the commercial market on a much deeper level.

So this residential book, it goes into the growth factors a lot more detailed than the commercial one. So I encourage you to master both. And then that way, at least you’re making an informed decision on whether to go commercial or residential and which one’s right for you. Well, now that there’s a residential book, there could be, uh, sneaking suspicions that there could be a residential foundational 10 part series coming soon, maybe.

But you’re the commercial guy, Andrew. Does that mean I have to point someone else out? I’m commercial. You hate residential, don’t you? I love, I’ll go out and say openly that I am pro any kind of property. It’s just commercial makes more sense. To me. Yeah, there’s pros and cons of each one, but residential, you get a bit more leveraging, but commercialized as we’ve discussed, if you get it right, is a much better performer.

Learning about how commercial property really works has never been easier with so many great resources around like this podcast and Steve’s book. And he’s giving it away for free if you discount code podcast on his website. So go to www dot. PolisiProperty. com. Use discount code PODCAST to get the book free.

All you have to pay for is shipping. What a great deal. All right, mate. So let’s start from the top. What are the benefits of investing in commercial property? So from the top, high cashflow returns. So everyone wants that instant passive income and commercial gives you the passive income instantly. So that’s the first one.

Stability of income is really cool because you do get those long leases, you can get those 3, 5, 10, 20 year leases. If you buy well, it’s low long term risk. And then the other cool thing is you actually get exposure to different sectors of the economy. So you get to buy an industrial space and the retail space and the medical industry where you’re not just buying kind of bread and butter residential properties.

There’s also really cool tax benefits. You get to hedge against inflation because it moves with the market of obviously, and then you get control of investment as well. And then on the last episode, we mentioned all the value add options. So there’s a lot more value add options there. And then obviously just property in general, you get to leverage, you get to use someone else’s money to kind of play with big numbers and get larger returns.

So commercial, as I said, like. It’s a much better property investment when you get it right. Like you get high cash flow, you get the same capital growth, if not more than some residential properties. And it’s just, it’s, it’s a win win when you get it right. Yeah. And one of the things that you didn’t mention, Steve, is you usually get a better quality of tenant too.

So you’re not getting these headache tenants and all the repairs and stuff are not on you. They’re usually up to the tenant to repair the property. I mean, one of the interesting things that a lot of people kind of the way they get into commercial properties, they go through the residential first. To get into commercial property because commercial property is a great end game where or even a mid kind of game where you’re taking the equity from the other properties that you have, the residential properties.

It’s hard to probably get money. You don’t have a great deposit. You don’t have a really high paying job. So you can kind of get your foot in the door, start building up equity, and then at some point you can sell down and really go after commercial property, which in my opinion is a much better asset in terms of longevity and also paying for your potential lifestyle, being out of force, capital growth force, force appreciation, and really, really grow that portfolio.

So you can live the life you want straight away. I mean, in residential sense, the more property you buy. The more negatively geared you go, the more that you are actually chained to that job that you have to keep on working for that job, because you’re not going to be able to create anywhere near the amount of passive income from a residential investment as you are in a commercial investment.

And for me personally, equity is great, but it’s not 100 percent bankable. You can’t just go, okay, like how many of our parents, like baby boomer. Parents are equity rich, but cash poor, like they just don’t have the money to be able to live the lifestyle that I want to live, but they have so much equity that they wanted to sell their property.

They’d have millions of dollars to go and spend, but they need somewhere to live. So realistically in my mind, and that’s why I love commercial property is that it’s a really great lifestyle play as well because the cashflow can fund your lifestyle. Yeah, and you also don’t have the serviceability issues you typically have with residential as well because they are so cash flow positive.

They service themselves, so you’ve got the options of like full dock loans, leased dock loans, or even just generally increasing your serviceability if you do have a couple of residential properties, a commercial can help you squeeze in that extra one or two properties. Obviously we’re on a commercial property podcast.

We’re very, very pro commercial property, but there are some negative parts about it as well, so you need a higher deposit. That’s what keeps people outta commercial property. It’s hard to get into the commercial property ’cause you need more cash upfront to get into it. Everyone knows that there’s longer vacancy in specific asset types in commercial property.

That’s a known risk. But basically understanding and having knowledge of the actual asset class and what you’re going into mitigates that risk and risk really is personal to you. For Steve and I, us buying a property in a region is a lot less risky because Steve and I know what we’re doing in terms of research and buying commercial property and how to do it.

And then rather than your mom and dad doing it for the first time, their risk level is way higher to do exactly the same thing. So risk really is personal to you. And you just need to make sure that you’re getting involved with the right kind of professional, like Steve and his um, buyer’s agency, highly recommended.

So. Yeah, and there’s a bit of a misconception that you have to spend a lot of money to get into commercial, like you’ve got to go out and buy a 3 million warehouse. There are some cheaper options, and like you mentioned, there’s regional areas, and just buying like a little warehouse on the fringe of a capital city, for instance, like you can talk as low as kind of 300, 000, 400, 000 will get you into a nice little quality asset if you are just looking to dip your toe in and kind of get some education along the way.

Yeah, so in terms of like, just quick while we’re on the subject, Steve, in terms of deposit that you’re going to need to get that kind of level of property, you’re going to need a 100, 000 deposit, right? Generally, 100, 000 is the starting point. So 100, 000 can be quite a lot of money for someone to save straight up off the bat.

If you want to start in commercial property, so and that’s on like a 70, it’d be great if it was 80 percent LVR. They are possible with some banks, particularly ANZ. They did used to offer under a million dollars where the LVR of 80%. I’m not sure if they do now. Have you heard of them doing that now, Steve?

Yeah, I’m still seeing on the market, slightly higher interest rates than what they were before, but you can still get them. Yeah, so, I mean, the difference in LVR can make a huge difference. Like, could you imagine if we get 90 percent LVR on a commercial property, it would be, everyone would be into it.

Everyone would be so all over it because it’d be so highly profitable, it would be ridiculous. But it’s not the case? Yeah, there’d be no glass ceiling because you’d do small little value add opportunities and you’d end up with a hundred properties within a year. It’d be sick, it’d be so good, you know, but it’s just not the case because, you know, the bank does view the commercial property as a higher risk asset on their books.

So that’s why they need more money to put in to take care of the potential vacancy. And that’s why when you’re starting out, usually residential is the path people go because they know it. It’s easier to get into. It’s easy to lend against and you can get a higher LVR. So I’m just trying to give everyone the understanding.

We are pro commercial property, but there’s also some cases where it’s really difficult. It’s not easy to get into it. So we are sugarcoating the positives. Like there are negatives and it is risky if you don’t know what you’re doing. If you have no idea what you’re doing, you don’t have experience, you can burn yourself financially.

Like if you sit there with a vacant property for years at a time with no tenant, That is a lot harder to weather that storm than say having a residential property that goes vacant for a week or two. Yeah, because with a residential property, you know, you can just keep on reducing your rent until you get a tenant.

If you keep on reducing your rent, you will get a tenant and that really doesn’t have anything to do with the value of that property. So if you’re renting it for absolutely nothing, the value of that property is still there. So it doesn’t really matter in the long term. It just only matters for servicing the debt.

But if you’re going to take the same approach to commercial property, if you’re reducing the rent on your commercial property, you’re losing value after value after value, like dollars after dollars. You just can’t take that approach with commercial property. You have to sit tight and wait for the right tenant to come past.

And hopefully you have a great property manager, like we just spoke about in the previous episode that will take care of vacancy for you and you won’t have prolonged vacancy because prolonged vacancy is the biggest enemy of commercial property. Yeah, no, exactly right, Andrew. So, let’s just do a quick recap of the episodes that we’ve already recorded, so people can jump in and out and go to the ones they want to actually listen to.

Because depending on where you are in your investing life cycle, if you’re finding property, you might be able just to jump onto episode five, leasing and lending. Okay, that’s where I am in my personal journey. So, in episode one, we spoke about residential versus commercial. That was a really, really interesting one.

Just start you off. Episode two, we spoke about types of commercial property. So Steve, what are the three types of commercial property? As we spoke about industrial, retail, and office, and then you’ve also got special ones as well. So you’ve got things like self storage, which you absolutely love, car wash stations, cinemas, hotels, and things like that.

But retail, industrial, and office space is where the most everyday investors are going to start off. Yeah, that’s right. Episode three, we spoke about the numbers. Very, very important. Why are the numbers important, Steve? As we’ve discussed, like commercial property is all about the numbers. So that’s looking at the cap rates and your return on investment and things like that.

So there’s quite a lot of actually spreadsheets on my website. So feel free to go have a play and just kind of look at the numbers and you’ll be like one of us. If once you look at the numbers, you’re a convert to commercial. Like you just can’t beat the return with residential. My biggest light bulb moment was when I’ve got it on my website that the 10 year pay down calculator.

So like you put in the numbers and you realize that commercial basically pays itself off at approximately 10 years. That’s a very powerful asset class. You can buy something a million dollars on a 6 percent net yield. And at the end of the 10 years, even with no rental increases, you’ve got a 60, 000 passive income.

In reality, you’re probably going to have about an 80, 85, 000 passive income. Imagine buying a couple of those instead of a family home. Yeah, it makes a huge difference to your wallet at the end of the day, doesn’t it? Yeah, exactly right. All right, so episode four, we spoke about growing a commercial portfolio.

This was a good one, Steve. Why is this one important? Yeah, so we actually showed how quickly you can grow a commercial portfolio because you don’t just wait on capital growth, like you’re actually using the cash flow as well and you get to kind of win on two folds there. So you can grow quite a large portfolio quite quickly with commercial.

And then even quicker if you want to do some value add opportunities. Episode 5, we spoke about leases and lending. This is the real hard part about commercial property where the lending that I mentioned before, it’s really the hardest part about commercial property, in my opinion. What do you reckon, Steve?

Yeah, go back and give that episode a listen because it is most investors biggest bottleneck, even with residential as well. That’s the thing, like, if you 90 percent load, everyone would just love it and keep going forward. So having that larger deposit and working out how to get that deposit is the trick to kind of growing your commercial portfolio.

And in episode six, we actually touched on buying and selling a commercial property. So sometimes commercial property, you might have had a strategy or some kind of a plan and you’ve executed it and you’ve really brought that asset to where you can take it and you want to dispose of that asset, take those funds and actually reinvest it somewhere else with a better opportunity.

So, Steve. What was really the main crux of that one? Yeah, so we went through the process with actually buying properties and how you go about it and how you deal with the agent and things like that. But then like you mentioned, actually exit strategies. So we went through quite, I think we were there about seven exit strategies that you actually use for your residential or commercial portfolio just to get that passive income for retirement or to spend traveling or whatever you want to do.

So. That was more about kind of exit and how to, how to get some lifestyle from commercial as well. And then episode seven, we actually had to break this up into two episodes, which is, it was on due diligence and due diligence. You know, I think we mentioned in that episode that it was grueling. That was a very, very good describing word for due diligence.

So episode seven and eight were part one and part two of doing due diligence on a property. I’m sure Steve can talk about due diligence all day on this one. Yeah, we spoke for what was about four hours plus Andrew on that one. I actually have to cut it down even for two episodes. So we barely scratched the surface, but they are the most important.

Obviously, that’s going to be the differentiating factor between whether you get a good commercial or bad commercial. And the difference between a residential commercial, residential you can get by and assuming you’re buying a decent suburb, you’ll do okay in the long term. Whereas if you buy a bad commercial, you’ll burn yourself.

If you buy a good commercial, you’ll do very, very well. So doing the work, it is grueling and you’ll spend on average 30 40 hours on each commercial property you’re kind of doing the due diligence for, but it is necessary. Yep, it’s 100 percent necessary. So the last episode that we released, episode nine, was on how to select a property manager, surviving a downturn, and my favorite part, adding value to commercial property.

So Steve, what was the really main piece on that one? That was a long one as well. We actually covered quite a lot of topics on that one. The main thing was just actually understanding what happens post purchase. So like all this other work and all the episodes is basically up until you make the purchase, but your job’s not done once you’ve actually bought the property.

Like there’s still management to be done. We still do value add opportunities. You can still increase the value of the property. So the work doesn’t finish even though we keep talking passive income and how commercial is hands off once you’ve got the property and it can be, but it also can be work if you want to really accelerate that portfolio.

Yep. All right, mate. So let’s put it all together in the 10 step process that you’ve got here on your website. I can see that you’ve laid it out beautifully. Do you want to start with step one? So basically, I did this 10 step flowchart just because it just gives a nice starting point of, okay, where do I actually start?

So you can listen to the 15 hours of podcast that I’ve obviously got, but this is just a nice little flowchart that shows you, okay, these are the steps that you need to go through if you’re looking to buy a commercial property. The first one is just education, listening to things like this, you’ve got your podcast as well, Andrew, reading books, going through online resources, there’s a lot of like Facebook and social media pages and things like that, you can get information from, the thing is with commercial, it really has become a big thing in the last kind of 3 4 years, so like when I wrote my book, I There was literally nothing out there.

There was a couple of kind of small books, but there was no podcast. And this is probably similar to why you started the podcast as well. Andrew is just, there was no information out there. It was literally just left to the kind of high net worth wealthy investors. So just try to absorb as much as you can and don’t take everything you hear as gospel, like everything me and Andrew say, if you want, go cross check it, go make your own decision.

There’s going to be a lot of gurus in the industry that kind of. They don’t have a backstory that they’re sharing and they’re trying to basically just get you sign up to their business or something like that. So just look at the cold hard facts and make your decision that way and just look at the hard cold data.

So, yeah, well, that was exactly why I created the commercial property shows because there was. No really informational commercial property podcast out there that spoke about really education and current market news and things like that. And I remember our first interview on that show is when you released your book, Steve.

And that was probably the first commercial property book to be released in, you know, the last five years or something. So it was a really big feat. I was impressed then and I’m still impressed. Yeah, I actually got a lot of messages from that podcast being like, I can’t believe you gave away so much free information.

So hopefully I get more of that after 10 episodes. Yeah. Well, I mean, you know, just take this moment to say thanks to the listeners for listening. Everyone keeps messaging me and texting me how great this podcast. So kudos to you, mate. Well done. You too, mate. Thanks for having me on. It’s been great. Yeah.

So mate, on the step one, educate yourself. I can really attest to this because this is kind of what I’ve been basically doing for the last five to six years is even if I’m spending money, like I don’t mind spending money on education, especially when it’s about commercial property. Because no one can take that away from me.

I can never, ever lose that information unless I forget it. But the best kind of investment is actually educating yourself because like from five years ago to what I know now, it’s like day and night, like it’s ridiculous. The knowledge that I’ve been able to compile on commercial property, just from doing my daily.

Obsession with it. It’s been really great. So I can only really recommend that everyone should get obsessed with commercial property and investing and their financial future and good things will happen. I promise you. Yeah, because there is a lot to know, like when you, when you’re starting out, like, like just understanding like the purchasing costs, the yields, leases, outgoings.

Depreciation, like cap rates and the cash flow, capital growth and how to grow the portfolio. Like that’s just before you can even start looking at properties. So educate yourself as much as possible and then start looking at properties. Don’t do it the other way around. Yeah, I totally agree. So mate, let’s go to step two, assessing your situation.

So this involves like looking at your current portfolio, your current finances and your risk profile. The biggest thing for me is to just work out what you’re trying to achieve and why. The biggest thing I get as a buyer’s agent, everyone like calls me up and they say, Oh, Steve, I want 100, 000 passive income.

And then I always ask why, and they go, Oh, it’d be great to be able to travel. I don’t, don’t like my job when I travel. I go, okay, why do you need 100, 000 for that? Like I can attest to, you can travel for 50, 000 per year quite easily. Why aren’t we making a 50, 000 a year? Like if you hate your job now. Why not?

Let’s bring that plan forward and actually make it more achievable. Why do a job for 10 or 15 years that you don’t like for the sake of having an extra 50, 000 that you don’t need? So just assess your why, and then that’ll really help you kind of formulate a plan. And then you can work backwards from that goal and come up with some realistic expectations.

Yeah, I really like this point because it does make you look within and think about what you actually really need and what you’re trying to get from commercial property. I don’t want to bang onto it, but the reason that I like commercial property and the residential property was something that it was a lot different proposition because I don’t want to work at my job for the rest of my life.

So commercial property. Was a better situation because you have passive income so you can basically do what you want to do and and stop working at your job that you’re currently doing and enjoy your time while you’re young, but if you’re buying residential property after property after property, you’re potentially putting yourself in a larger and larger negative position.

Well, you have to work like, that’s not fun. Like, why would I want to be, you know, having to work until I’m 60 or 70 years old to enjoy my life? We want to enjoy it while you’re young with your kids. Your kids are only young for a short amount of time. Yeah. And then the funny thing is most of my clients that I was working with say seven years ago, The ones that actually got a passive income and actually stepped away from work and started working on their passion projects and doing a job they really like, they’re actually earning more money now because of it, because they’re actually enjoying their job.

It just gave them the freedom where it just took the stress off having that 30, 000, 40, 000 passive income and taking, dropping that pay from 120, 000 to an 80, 000 job that they really wanted to do, just gave them that kind of freedom. And if you just, just assess who you are as well, like I’m personally never going to be someone with a hundred properties.

I just, I don’t need it. Like, like my happiness comes from like traveling, socializing, rock climbing, hiking and things like that. I don’t need that much money. So why am I going to kind of graft and work long hours and long, like basically to extend my period when I don’t have to. But if you are someone that wants that, if you want the private yard and things like that, cool, write that down, make sure you’re honest about it and then work towards it.

Yeah. I mean, personally, I don’t need it. But I want it. I’m planning on building a billion dollar syndication fund, so I don’t need it, but I want it. Yeah, and that’s fine. Everyone’s gauge of happiness is different. I’ve got clients that buy a 250, 000 sports car and they’re still miserable. So, just find your gauge of happiness.

Like, you’re very results driven, Andrew. You like hitting kind of big targets and goals. And that’s fine. Whereas I’m, I’m a simple folk in Australia. I drive around in a camper van and I travel and I hike and things like that. I don’t need that much money, which also means I don’t have to take on that much risk.

Like me personally, I don’t do the big risky development projects and a lot of value add projects and things like that. Most of my properties are very boring. They’re just good tenant, good location, strong lease, low vacancy rate, send and forget and they do the job that I need them to do. You know, realistically, commercial property should be somewhat boring.

You’re not taking huge risk. Developing with no cash flow coming in from the development is quite risky. And I would say that that isn’t boring. That is definitely, you’re always thinking about it. You’re always, you know, on your toes. But in general, commercial property and property in general is a long term play and should be somewhat boring.

Yeah, I tell a lot of like my mom and dad investors, I actually say to them, I’m actually going to buy them a boring property and I don’t mean that in a negative sense. I just mean there’s, it’s not going to blow your hair back. It’s not supposed to. If it is, there’s generally probably something wrong with it.

If it looks amazing, why are you able to find it kind of thing over someone else? Buying something that just ticks all the boxes really well is going to have much better long term. As we mentioned before, Andrew, like, imagine if you just bought anything five years ago on a nine to 10 percent kind of cap rate, then now it’s compressed to 5%.

It didn’t matter if you’re trying to find that unicorn bargain and things like that. You just bought well, bought to the fundamentals and had the capital growth and the rental increases. I can only think about my own situation where I was, I had a property direct to owner. This is probably three years ago, right?

This is in Newcastle. It was a dump of a property, but a beautiful property in my eyes, cause I look for problem ugly properties. It had, it was an industrial property that had probably about six tenancies. And I was trying to put together an investment group to buy this and I would manage it and run the value add, right?

I pitched it to the guys that I was talking to and. They’re not being having the eye and seeing that this property has huge value, you know, right now, because it’s so undervalued and underutilized, we were actually going to buy that property at a nine cap three years ago in Newcastle, in Newcastle. Yeah.

And yeah, that’d be, that’d be on my sub five now. Yeah. Like. Yeah, I couldn’t have predicted the market would go like so, so, so heavy, like in, in, in, in so sharp, but if we hadn’t done nothing, that would have been like a million to 2 million increase in the value of that profit from doing nothing, just holding it like a nine cap at that time was still extremely high, even a seven would have been respectable in that time, but I was buying it from an older gentleman.

He didn’t want the property more. It was a hassle to him managing it. Um, he was actually self managing it and he just wanted to get rid of it. But the guys that I, I had that I was going to, I was pitching this deal to group about five people that we’re going to buy it through. They saw the property and they turned it down.

And I hope they’re listening to this because we would have made a good penny. We would have made a lot of coins. So not to be, but that’s just, uh, one that got away for me. Yeah, but we don’t want to be saying the same thing in three years time and that’s why when like the last episode we spoke about like interest rate rises and inflation and things like that.

You can’t predict the market. So as long as you focus on the fundamentals and get something that’s going to be more demand in the future than it is now, long term, you’re always going to be okay. Like they’re not making more land, you’re always going to have that scarcity factor. I totally agree. All right, mate.

So in step three of the process, formulate a plan. How important is this and why should we be doing it? Yeah, so we covered a lot of this in Episode 4, so that’s going over things like your goals, your milestones, and your exit strategies. So, before you decide on a plan, you’re going to have to consider a few things.

First one is your risk appetite. So, like, how much money can you put into the property and how much can you risk? And that’s just going to be personal circumstances. So, like, how many dependents you have, what are the commitments, how much cash or equity you need. Versus like how aggressive you’re going to be on the property as well.

So like if you’re a high income earner with a large amount of liquid savings, for example, you can take on a lot more risk than a low income earner with minimal savings. The next is assess your goals as we spoke about before. So developing that strategy is going to come down to individual short, medium and long term goals.

We spoke about like why commercial property, so don’t just go out and chase a particular number for the sake of chasing the number, just work out what actually makes you happy and that way you can go from there and then just assess what time frame and what exit strategy you’re going to do. So what time period are you going to do this over?

Is it a 3, 5, 10 year plan? And then go from there. Just remember like a property’s performance in the market conditions, they might not always live up to your expectations. So purchase with a margin of safety and then not every property in your portfolio is going to be an outstanding performer. So don’t, don’t think you have to go out and find unicorns as every single property.

There’s just too many market variables to get everything right. So like I said, as long as you focus on the fundamentals and get that boring property we put, you can build a really good bread and butter based portfolio. So. Another point to taking the consideration is just that the most common mistake I see most investors make and that’s just not having a sufficient cash reserve or buffer.

So like if it probably goes vacant or there’s an urgent maintenance item that you need to pay for, just make sure you’ve got the buffers in place and then that way you can plan from there. On my website, I’ve got a sample 10 year property plan. So feel free to have a look at that and create your own. If you need some help with it, feel free to reach out.

I’m more than happy to guide you or help you with a strategy. All right, mate. So I’ve heard that you do do property planning for clients as well for free, Steve. Can you tell us a little bit about that? Yeah, so if you wanted a high level bit of a plan, just give me a call, schedule a free half hour chat and I’ll kind of give you a kind of high level Excel spreadsheet plan.

So similar to the one on my website. So just reach out. I’m more than happy to help. Awesome. So next step in the process in the flowchart is building your team, mate. Who do we actually need? Yeah, so we explained this on episode six, so this is just building a team and you’re going to need people like a broker, an accountant, property manager, town planner, a buyer’s agent if you’re time poor or lack of experience or you want some access to off market, conveyances and solicitors.

And then a mentor, whether they’re paid or unpaid or online or just a book or like a podcast, for instance, like ours, just get a mentor as well. You’re also going to need a valuer and a financial advisor as well. So there’s quite a lot there. And so look at building a team and get some references and make sure you get along with everyone that you’re kind of using.

And more importantly, make sure they’re competent because there’s so many bottlenecks with investing that it’s normally one of those people in the team. So Steve, if someone gives you a call, will you openly give them a reference to each of these pieces? Yeah, I’m more than happy to recommend people. I’ve, I’ve used kind of like basically people in every capital city and regional town.

So if you need any recommendations, feel free to reach out. I’m happy, happy to advise. Just make sure they’re experts in the commercial realm as well, not residential. Like, And we spoke about this on episode 6. A residential broker is not who you should be talking to for commercial finance. They may get the job done with one of the big four, but there’s just so many more options with commercial lending.

You’ve got like the lease dock loans, no dock loans, commercial only lenders, for instance. So, Why wouldn’t you want to have a look at the whole kind of landscape? Stay up to date with all the hints, tips and tricks in commercial property by following Policy Property on Facebook. Go to Policy Property, hit that follow button and never miss a beat with Policy Property.

So I mean, episode six, we covered quite a lot. We actually spoke about the next step. In the process, which is choosing a buying structure, Steve, I mean, we can’t go into the, the crux of it right now, but can you give us a quick overview of how to buy a property and the structure that you should potentially use?

Yeah. So like the accounting is crucial in this. So like, it’s, it’s ultimately going to come down to tax minimization and asset protection and then how you’re going to tie this in with the exit strategy and long term plan. So again, a commercial property accountant who understands commercial property investing is crucial because they’re going to help you with the plan from the tax side and the buying entity side as well.

We quickly touched on like, yeah, there’s like individual structures. Joint tenants, tenants in commons, and you can do joint ventures. You can have family discretionary unit trust, and you’ve got self managed super funds, and then you’ve got companies and syndicates. So there’s quite a lot to it. And a lot of the time that’ll actually halt your finance as well.

If you buy under the wrong structure. So making sure you’re a good accountant, get the structure, right. And then also talking to your broker, because you’ll actually sometimes have different borrowing capacity based on the different structures. So getting that all to tie in nicely as a key to kind of growing your portfolio.

Yeah, really setting this up the correct way. The first time is key. I mean, it’s exactly like buying the right property from the start with the end in mind, thinking about where you want to be and how that property is getting you to that location or that place in your investment goals and future. It’s the same thing with the entity structure that you’re setting up.

So if you’re planning on buying this property and putting it into this trust and then adding value and disposing of it, Or refinancing and you might not want to have this wrapped up like cross collateralized with another property for instance. So you really need to be talking to your property professionals in that particular field to make sure that you’re setting this up correctly from the start because there can be some reasonably hefty costs if you know you want to, you know, break things, change ownership and all that kind of stuff.

Stamp duty can be incurred. It really is important to get good advice on this setting it up. Yeah, exactly. Untangling the wrong structure is really hard. And like you said, there’s huge costs involved. You might be looking at paying stamp duty again. I say this all the time in my work. And same thing with a lot of people that have gone into like a joint venture with a family member or things like that.

And they don’t realize that that’s harming their borrowing capacity on the next property or their circumstances change and they have to sell the property. So just making sure you get it right from the start is crucial. A quick tip on that one, if you’re going into a joint venture with someone, usually the bank will look at that like you’re, and even if you’re taking on half the debt, a bank will look at that like you’re taking on the full debt.

Potentially that other person could back out and not be paying, so your lending is definitely in jeopardy there for the next one. Yeah, and a lot of the time there was no purpose to it as well. They just feel like if they’re in it together, it’s lower risk. It’s not. You just got half the risk anyway, but like you said, you’ve actually got the full debt.

So you need to handle the whole thing. So just assess why you’re doing it before you actually jump into it. Yep. And now one of the most difficult parts of the process is step six, obtaining finance. And we spoke about this in episode five, Steve. Why is the finance piece so bloody difficult? It’s just hard.

The banks are giving you quite a lot of money and you don’t have to do really anything for it. So, and then that’s the power of property. We get the power of leverage. So, there’s just a lot more moving parts with commercial finance as well. So, you’ve got like the types of finance, different types of lenders, types of loans.

They obviously like the different types of loans. You’ve got like full doc, you’ve got P& I versus interest only, you’ve got leased stock loans, no doc loans, and there’s even like private lending options in commercial as well. And then if you’re looking to do like a development or a varied opportunity, there’s even more options there.

So it is a lot more difficult because of the moving parts, because you do have to assess the lease, the type of tenant, the location. Who they are and things like that. Each bank is going to have a different criteria of what they accept and don’t accept, so making sure you have a broker who understands the commercial realm and has worked in a long time is critical.

Yeah, and each bank has their own appetite for the different asset class that you’re buying into, the vacancy, the area, the flood risks. Like, it’s just a whole mixed bag of things that you need to tick off with each, like, different lender. Getting valuations, who’s on the board, like, it’s a big process. You need to give yourself a lot of time to make sure that you can get finance.

Um, and that’s why we have a finance approval clause. In all of the contracts that you would do, Stephen, every contract that I’ve or every offer that I’ve put in, I’ve always had that financial clause in there because you just need it. If you can’t get finance for that property, you’re in big trouble. And more often than not, you will have some kind of problem with the bank on getting finance and it will take a little bit longer than expected.

I haven’t seen a recent deal actually come in on time with that finance clause recently. Andrew, they always offer an extensions at the moment. Like some lenders aren’t even picking up files for three weeks. So if you are going to buy a property, make sure you’ve got that finance clause in the contract.

If you’re going to auction and you’re buying it unconditional, make sure you have all this stuff done beforehand. So there’ll be weeks of work of due diligence and finance just to making sure it kind of goes from there. But yeah, just make sure you speak with a commercial broker. Like I’ve had so many times where Investors come to me and they’ve said, Oh, no, my broker said I can’t get finance for commercial and it was a residential broker and then they come to a commercial broker and then all of a sudden they’ve got a million or 2 million lending capacity.

So just make sure you’re speaking with the right people. Yep, definitely. All right, mate. So let’s move on to step seven. Choosing the type of property and location. Now, this is really, really important. Everything in commercial property is important. But why is this one so important, Steve? This is probably the fun part of investing, where you actually get to start looking at properties.

All this other stuff is just kind of being boring, admin type kind of stuff that’s procedural, but you have to do it. This is where you get to have the fun part and actually choosing the type of property in the location. So like whether you go industrial, retail, office, or go one of those specialized assets I mentioned before.

We went over all this in episode two. My advice would probably be if you’re starting out, go with something simple, so start with say industrial and that’s just because you can get some comfort in numbers like with something like industrial, you can look at like all the other industrial properties in the area, what they rent for per square meter, what they sold for per square meter.

You can find similar properties that went vacant, how long they were vacant before and things like that. At the moment, like vacancy rates in Australia for industrial, they’re sub 1. 6 percent for all the capital cities. So it’s the tightest it’s ever been. So it is probably the lowest risk where if you go out and you buy, say something like a retail property, if it’s a suburban retail strip and you’re buying one property of say 10 in a row, and there’s been no vacancy there for three or four years, how do you know what the vacancy period is?

And then generally they’ll have a hard vacancy period anyway because they’re high like a specialized asset and then things like office space like that’s at the helm of oversupply because if a developer comes in buys 10 houses next year and builds a 10 story skyscraper, you’re going to have a huge influx of properties come in.

So, for me, industrial is a really nice starting point just to get your head around everything, but find what you gravitate towards. If you enjoy it, you’ll actually spend more time researching it. Yeah, well, some people have just a different preferences. Some people just like retail because they like it.

So they’re happy to take that risk and go into a market where they feel like they can add value. Because I guess if you’re thinking about it, like where they are in the cycle, the sector cycle, industrial would be close to the top. Retail would be probably on the upswing, I guess, or in stagnation and office would be on the downturn and then a whole myriad of specialty assets in between that you could also look at and see which one is your particular interest and flavor for you.

But there’s just so much variety and you can really hone in on different types of properties that you could find different types of value add strategies. So there’s different ways you can add value to a retail property and as opposed to industrial property. We did go through that in the last episode.

So it really does come down to your personal preference, your risk tolerance. Your risk level as in your knowledge and how that risk is understood by you and your knowledge of the area. Having a solid knowledge of the area and where you’re going into is also key. And then doing the research of the location of the property in that area is also very, very key.

So there’s just a lot of things that you need to look at and research and understand to make a really, really good financial decision. You’ll naturally have an affinity with one of them. And like, I probably gravitated to a lot of industrial early on because I was an engineer. I’ve spent most of my time working out of factories and workshops and mine sites and things like that.

So I understood that asset class, whereas I have a lot of clients who they work in retail and they really love retail. So just become an expert at one. Don’t try to be a master at all of them. There’s so many idiosyncrasies with all of them. Like you obviously have the self storage master at the moment, Andrew.

So like, You just gravitate to what you enjoy because if you enjoy it, you’ll spend more time doing it and you’ll understand it better. That’s it, mate. All right, let’s move on to step eight, the property acquisition. This is your, uh, party, Steve. What do we do there? This is the part where you’re actually finding the property and you’re trying to buy the property.

So that’s just going through like the searching for it. Negotiating the deal, performing due diligence on it, booking the building pest inspections, getting the valuations from the lender, and then going through the settlement process. So, we went through a lot of this on episode six, and then covering off the due diligence, obviously important on that process as well in the acquisition.

So, that’s doing things like area research, tenant business analysis, lease review. Vacancy and occupancy studies, looking at future development and value add opportunities. Just go to my website. Like I said, that’s free resources. I’ve got cashflow spreadsheets, return on investment calculators, due diligence checklists, and they will all help you throughout this process as well.

And this was in episode six, wasn’t it, Steve? We spoke about this in depth. Yeah, episode six. So go back and have a listen. It is quite an important episode, although we do start after every episode, don’t we Andrew? Make sure you listen to episode 11. Episode 11 is the most important one. All right. Well, it keeps people coming back and it’s true.

It’s not like we’re lying. This stuff is really bloody important. So the next one that we want to talk about is step nine, post property acquisition. We spoke about this in the last episode we just did. So it should be fresh in your mind if you followed the whole series along, but Steve, just for the people who are just jumping in on this episode, what did we talk about and why is it important?

So we, we covered like property management. techniques, looking at like regular portfolio reviews, your lease renewals, finding tenants, doing rent reviews and things like that. And even just looking at things like selling properties and then making sure they’re part of the exit strategy and reviewing the exit strategy as well, because circumstances change.

We, we all have kids change jobs, want to travel and do things like circumstances always change. So review your exit strategy. Just make sure that you can kind of come back, go again and again, if that’s your plan. But basically, treat your portfolio like you’re running a business. Like, it’s effectively what it is.

It’s a money maker for you. So, it’s a profit producing enterprise. So, just treat it that way. Awesome. Awesome. So, mate, what about the final piece of the puzzle? Step 10. What’s step 10, mate? Boom. We’re there, Andrew. So, step 10 is just go out and enjoy your passive income. So, That doesn’t necessarily mean quit your job and go travel.

It could be use that income that you get from the passive income into other assets, whatever floats your boat. Just set your plan and go and actually enjoy it because there’s no point in doing investing unless you’re realizing the value through enjoyment or getting future properties. I find most investors just want more and more, which is fine, but just make sure you don’t end up doing a job you hate or not seeing your kids for the first 10 years of your life because you’re grafting for that next 20 years.

So just go out, have some fun. More importantly, have a crack and enjoy the investing. Yeah. That’s it. Figure out a great value add strategy and execute it and just keep on building that passive income. You will be very, very happy with what you come out with. All right, mate. Well, that wraps up our highly educational 10 part series.

So, mate, I want to take this opportunity just to thank you for sharing this information. This has been basically extracted from your fantastic book there and, um, you know, you put in a lot of work to this and I really hope that a lot of people get a lot of knowledge and information out of this one, because we really have put in a lot of time to recording this, editing this, putting it all together, making it actionable and making it really easy to understand.

And I hope people have had fun along the way as well. Cause I think, um, I can speak for myself and probably Steve as well. We really enjoy talking about this stuff. We could probably talk about this stuff underwater. So it’s been fun for us as well. And I hope everyone’s enjoyed it. So thanks everyone. And thanks to Steve as well.

No, thanks Andrew. It’s been awesome. I’ve just been trying to get as much free information as I can out there for people. So that way they’re at least making informed decisions and hopefully have a good outcome from their investing. That’s it, mate. So where can the listeners go to find out more about you and get your two free books?

So just go to my website, www. policeyproperty. com. You can get my commercial and my residential book for free. So just go to checkout and use the code word podcast at checkout. But there’s also other like resources on my website. So there’s like cashflow calculators, return on investment calculators, pay down calculators, due diligence checklists, sample property plans.

Um, I’ve also got like a YouTube channel with lots of educational videos and I constantly write blogs and have an educational mailing list. So, just shoot me an email or a message if you want to get on the mailing list, but more importantly, just reach out as Andrew just said, like, I love chatting property and I’ll chat it all day every day and I literally do it for a job now because of it.

So, shoot me a message if you want to have a chat. Awesome, mate. Well, this has been author Steve Polisi and Andrew Bean on the Commercial Property Investing Explained Series. Do you want to take us out, Steve? Happy investing guys. I really appreciate you listening. Thanks everyone. Cheers. Thanks for listening to the Commercial Property Investing Explained series.

This show has been produced by the Commercial Property Show Network.