EPISODE 2: What are all the Different Types of Commercial Properties? - Property Inc

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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 Polisi. I’m your host, Andrew Bean, and I’m here with author of Commercial Property Explained Simply and founder of buyer’s agency, Polisi Property, Steve Polisi. How are you, mate? Good, mate. Episode two, we made it. Yes, we did.

Excellent. This is going to be a really, really fun episode where we completely dive into every single type of commercial property, because there are so many subsectors and different things that you need to know. It’s a huge game, and the more that you know, the more that you can take advantage and create huge value in commercial property.

Yeah, spot on. It’s just one of those ones where it’s just not comparable to residential. There are literally thousands of types and variations of commercial that it’s even hard to encapsulate, but we’ll do it with some main topics. All right, Steve. Well, do you want to start by giving us an overview of all the different types of commercial property?

And then we can drill down sector by sector. So just give us a broad overview of the different sectors. So the three main sectors, which everyone kind of knows about is industrial, retail, and office. And then each of those are going to have their own nuances. But then there’s also many niche types, so that’s things like hotels, land for making profit, multi family properties, which are like apartment blocks and things like that.

So you need to understand the unique characteristics and risks associated with each type. So Steve, are there any type of specifications on each property, like subclasses and things like that, that we need to know? Yeah, so the building code of Australia, I actually know this because I used to be a structural engineer by trade, they divide property into 10 different classes.

If you go on Google and type in building codes Australia classes, you’ll then find the 10 classes. And then within each of those class, they’ve got a multitude of differences in terms of like location, layout, types of building frontage, foot and road traffic and things like that. And then further to that, they’ll then class the building in terms of like the age and desirability.

So if you ever hear anyone talking about like a class A, B or C building. Basically, Class A are the most desirable. They’re like the high grade features and amenities and then C is the slightly older run down ones. Worth noting though, sometimes the banks will then look at these properties and class themselves and it’ll actually depend on how they lend to each property depending on the class of the building.

You know, using classes and stuff like that, like from an investor point of view, I hear it’s a lot more common in America where a person will say, Oh, it’s actually a class C building. And they’re talking about an apartment block, which they call multifamily. But in Australia, we don’t tend to kind of talk about classes too much.

And it’s, it’s one of those things that it really depends on your perspective of what you think a class A building, B building and C building should be compared to the other stuff. It’s one of those things that really not. A fact that you can say, yes, this is, it definitely is a class C because people have different opinions.

It also doesn’t matter. You just got to assess why you’re buying that property. The only times I generally hear is when people are talking about office towers and things like that because they want to know the thing. But if you’re buying a warehouse and say, it’s an industrial property and it’s got a manufacturing kind of tenant in it, you don’t want a class A building.

You want the old run down one, because they actually don’t care about how pretty it is. They want floor space. Yeah, that’s right. And like, you don’t really want to be buying that class a building as well because that’s probably maxed out with a value and rental potential. So you want to be buying the lower grade buildings and basically building them up and making them look a lot better to increase the rent, which increases the value.

So mate, so let’s start talking about the darling of commercial property right now. And that’s industrial property. So industrial property, they can actually be the ugly duckling, but they’re also the longterm solid performer. As I mentioned on the last episode, industrial property is just as important as residential property because every item you’re touching your life goes through warehouses and industrial properties.

Every item that’s fabricated comes from an industrial property. Every item that’s stored stays in industrial property. So it’s less glamorous. However, historically, it’s a really good, reliable performer. And what we’re seeing now is vacancy rates are getting tighter and tighter. Like with the increasing growth of e commerce sales, rising business inventories, the need for fast deliveries and drivers and industrial estates, they’re becoming really popular.

Each industrial property, they can vary in form though. Like you can have a warehouse, a factory. Manufacturing storage, they can vary greatly in size from little small warehouses to enormous manufacturing plants. They can have multiple tenants and have a mix of office and retail as well. However, with industrial, normally they’ll only have 10 to 30 percent of the total floor space for each tenant based on office space.

Otherwise, you start generally shifting into the kind of office classification. So with industrial, you need to factor in some important things such as like the building itself, like look at the the roller door height, the internal roof height, access for trucks to in space to maneuver to get in and out.

Fire protection is also an important consideration as most industrial properties hold a large amount of inventory. So. You need to make sure it’s fire protected. It’s got a good electrical capacity, the floor thickness and load capacity. There’s ability to kind of do what the businesses need to do.

Disposal of dangerous goods, potential of airborne products. So there’s quite a lot to it, even though it is just generally three concrete tilt up panels and a roller door. Yeah. And definitely you got to see to be looking at it from a business perspective as well. So if you’re looking at it, like, Hey, how would I operate my business here?

What do I need to do here? And you put yourself in a position where you ticks all the boxes. then you’re likely going to have a very, very low vacancy on that property. But there are other things like staff amenities and things that you also need to take into account. One of the big things as well with industrial properties is access of trucks.

Do you want to talk about that, Steve? Yeah, so depending on the type of industrial property and the size, trucks are quite important because they’re obviously going to be able to access the property. If it’s a fast turnover product or large turnover product, the roller doors need to be big enough for the truck to physically fit in and maneuver in and out quite easily.

Some really fast paced industries actually need two entries and exits so you can actually come in and out in the same go. So they can come through, pick it up. So there’s a little bit more to understand it. But then even with industrial, there’s different types of industrial buildings. Like there’s, there’s warehousing, distribution, manufacturing, storage.

All of these are going to have their own little nuances and you need to understand that. And then just the location they’re in. Like you need to assess what area they’re servicing. Like if it’s a industrial complex surrounded by residential property, chances are that’s going to be a service type of business.

So it’ll be things like a spray painter, panel beater, kind of service local community. If you’re near like a airport or a port. They’re going to be generally distribution type businesses. If you’re in that manufacturing space, you’re going to be kind of the larger floor space on the outskirts of the city.

So we can go into more detail of those if you want. Yeah, let’s do that. Manufacturing properties. Let’s talk about those. As a kind of name suggest is basically where you fabricate or assemble raw materials into products. They’ll normally be more focused on the floor space. You’ll typically only have about 20 percent of kind of office in the building.

So that’s the main difference between them and some of the other types. However, sometimes they’re a combination between warehouses and manufacturing. It just depends on the type of business and the location. One of the points to note, and this always comes up in conversation is manufacturing is dying somewhat in Australia.

So it’s just obviously with overseas kind of manufacturing, it’s, it’s just very hard to be competitive. So. If you are looking in this space, look for the ones that need higher precision or quality. So things like medical or really detailed fabrications where tolerances is quite tight, they’re the types of fabrications I’d look in.

I hope you’re enjoying the show. We’ll be right back after this short. Break 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 use Discount Code podcast on his website.

So go to www.policeproperty.com. Use discount code podcast to get the book free. All you have to pay for is. shipping. What a great deal. And what about storage properties, Steve? These are my personal favorite, but what about storage facilities? Can you explain that for us? I think you probably know storage facilities way more than me, Andrew.

Again, this is the whole point with commercial is there are so many nuances and specifications like Yeah. Yeah. Yeah. I put my hand up and say, Andrew, you know way more about storage because I generally will stay away from them because I don’t understand them as much as I should. Like everyone knows what self storage is.

It’s where businesses or kind of people will leave goods and kind of come in and out. They’ve got lots of small tenancies and they also seem a bit resistant to recession. So what I would actually didn’t know is corporations are actually one of the biggest customers. I thought it’d be kind of personal use.

But corporations use it for like hard copy documents, storage, general goods, oversupplied inventory, things like that. And much like the other ones, there’s, there’s different types of storage. You’ve got like outdoor bays and indoor storage bays, climate controlled ones with air conditioning and fridges, ones that are sensitive to temperature.

And then you’ve got the specialty ones as well, where you can look, store things like cars, boats, documents, artwork, alcohol, things like that. And then there’s mixed use and yeah, there’s just varying types. But is there anything you kind of want to add about that, Andrew? Cause you are the expert in this space.

Yeah. So the reason that I like self storage and it’s what I’m moving towards, I’ll talk about that later maybe, but the reason that I like self storage is that you’re buying a property with hundreds of tenants, right? So the more tenants you have. In my mind, that lowers the risk because it basically keeps the buck away from me from having to pay that mortgage repayment.

So if I have a hundred tenants and say I lose 10, I’ve still got 90 tenants to actually pay that mortgage. Very, very, very high cash flow business. There’s also another cup of storage that Steve didn’t touch on, which is, it’s crazy in Australia, but some self storage facilities offer gun storage. I didn’t know that a couple of years ago, but thought that was.

Really interesting. And one of the things that is really, really great about storage too, is that a lot of the industry is managed and operated by mom and dad operations. So if you’re finding these businesses that run by a mom and dad operation, and then you overlay that. With a professional operation running that actual facility, like a business, because the big difference between these Steve is that self storage is a business.

It’s a business first and a real estate asset. Second, it’s not meant to be run like a passive investment. You can do that, but you’re not going to get the best out of the facility. Self storage, if you’re doing it correctly, is a hundred percent a business. You want to have a showroom. You want to be selling products.

You want to be implementing things like dynamic pricing, proper property management systems, and things like that, where you can email, text. Send notifications, invoices to the customers. It is a real full on business. And if you treat it like that, it can be hugely rewarding. So the types of properties that I’m looking at, wildly under rented and with self storage, you’ll find that it’s a very, very localized business.

So you could look at a self storage facility in a 8k kilometer radius. And those are going to be more than likely your tenants that are coming in. But then another 8k is down the road. That might be a whole different market. So… Looking at self storage and understanding self storage deals, it’s almost another layer of investigating you have to do.

Like it’s the due diligence that you have to do on self storage is wildly more involved than doing due diligence on just an industrial property. You need to understand the market that you’re going into. You need to understand the rates that are being paid currently. And then you need to understand where you can take that property.

So the properties that I actually looking at purchasing, I’m overlaying what I know I can do and from a business sense. And we are only going after properties that have a 20 percent cash on cash return after we implement our value add opportunity. It’s not hard once you know what you’re doing, but you need to know what you’re doing and what you’re buying first before you’re actually going into these properties.

So I think I rambled on a little bit too long. We’ll move on. There’s a couple of words that I want to touch on. So you use, it’s not a passive investment. So the listeners listening don’t go into it thinking you can buy it and it’s just going to be fine. You are buying the business. So that comes with risk.

And like you said, it’s not hard if you understand it, but neither is commercial property. Once you get it, you just actually have to get your head around all the nuances, find your niche and then focus on it. And you can actually do very well. So you can run it like a passive investment. You can chuck a real estate agent in there to actually do the letting up.

But those are the type of properties that I’m going after and I’m buying because they’re not run professionally in operation sense like a business and they have a static price. That they’ll use, right? So, and it doesn’t matter how full or how vacant they are. They’ll still have the same price. So when you’re looking at self storage, if I have 10, three by three units, right?

So say if I have 10, those are the only 10 I have on site and they’re all vacant. Day one, I’m probably charging. I’ll just pull a random number, say 200, but as they start to fill up. The supply and demand ratio changes in my facility. And you also have to be understanding the supply and demand in the actual market.

Right? So as my facility fills up, you are changing the price. Do you going up and up and up and up? So if I filled up five of them, I might move up to two 50 and then I fill up another four of them, it might be two 80, you know, so I’m totally changing the price. It’s a dynamic pricing system. And if you want to think about it like this, when you go on a plane, everyone pays a different price for each seat.

It totally depends on when you bought that ticket and what deal you got. And if you really think about it like that, that’s exactly how self storage has to be run. You have to be looking at the vacancy of your facility and the wider market and really understand how you can drag the most money. out of that asset.

And when you’re putting a real estate agent into the property, that doesn’t happen. They’re not running it like a business. They have one pricing list that might have changed at the start of the year. It’ll stay for the whole 12 months or, you know, forever. So if anyone calls them up, you’re like, Oh yeah, what’s the price for a three by three unit.

It’s X, you know, it doesn’t matter to them if it’s vacant or not. All they want to do is collect the commission of actually getting it tenanted. So it doesn’t matter to them pulling the most amount of cash out of it. So you can run it like a passive investment, but please let me know if you’re doing that because I want to buy your asset.

Why didn’t you just say you like storage Andrew?

All right, mate, so I’ll digress from my self storage rant, but so you mentioned previously about back to industrial manufacturing properties. And I wanted to know what’s the difference between a manufacturing property and just a warehouse and distribution property. All right. So, so warehouses and distribution facilities, they’re used primarily for storage and distribution of goods and merchandise.

Usually less than 15 percent of the total space will be devoted to offices as floor space is a priority with less office start in these facilities. You need to be mindful that you require high ceilings to allow for more cubic storage space and you’ll typically have the multiple roller doors as I mentioned before to allow for like simultaneous loading and unloading.

And then even then some buildings are going to be specialized and have like cold or freezer storage. Another point is big multinational companies usually look for following warehouse and distribution properties that have bigger buildings, they have high ceilings, more storage capacity, they have embedded technology that allow for automated operations, strong durable concrete floors to allow for forklifts and trucks and things like that.

and really good truck maneuverability. So most older warehouse buildings don’t suit because they have a smaller roof and they don’t have the turnover of product, which works well for the smaller businesses that are maybe just like a kitchen fabricator or something like that, as opposed to a warehouse or distribution center.

And these type of properties also have really big hard stands, don’t they, Steve? Yeah, generally will. And so that a lot of time is for overpriced supplier stock. But again, it’s going to come down to the nuance of the property, like if the stock can be left out and things like that, whereas something like there might be boxed goods that the whole property is going to have to be undercover.

So can you explain what a hard stand is? So a hard stand is the area outside of the actual building itself. And that’s used for basically storage of oversupply of product, parking of vehicles and things like that. You’ll generally get more of a hard stand area with freestanding buildings, as opposed to say like a body corporate warehouse.

And it’s just used for all those types of things. And a hard stand is also actually quite advantageous for the owner as well because these parts of the property, sometimes places where you can actually add value, you could put your own container down and rent that out. Potentially, some of these hard stands are huge around these properties, so you could potentially subdivide this and add value that way as well.

I was going to say that if you’re buying a large property, some of the hard stand areas are actually really, really attractive for subdividing the property. Even building second with obviously council approval second dwellings and actually basically doubling the income there and that’s a point to notice and we’ll talk about that on another podcast but smaller size tenancies actually get a larger floor square meter right in terms of rent.

So you can actually fabricate capital growth that way as well by having multiple smaller tenancies. And Steve, in terms of industrial property, your warehouse and distribution properties, that’s really the main, like, crux, what most people will be buying in. Why have those types of tenancies and properties really taken off over the last, what, maybe Three, four, five years.

One of the funny things, it’s taken off in terms of capital growth because of the demand, but one of the big ones is obviously the e commerce burn. Like everyone needs things faster. 10 years ago, we were happy to wait one week for goods. Now, like literally on Amazon and sites like that, you’re disappointed if you don’t get it the next day.

So, There’s a lot of those kind of smaller warehouses, like basically satellite warehouses, which the everyday mom and dad investor can actually afford. Like you don’t have to go out and buy the 10, 000 square meter warehouse. There are plenty of warehouses from 30 square meters to 200 square meters that are very affordable for everyday investors.

And one of the things as well that’s now making this a lot more popular is the rise of selling things on eBay that where people have a lot of stock and they want to actually have like online business as a side piece and they do need places to store these items and stock. The online boom that’s happening right now, and it’s not going to stop.

It was already happening before COVID happened, but COVID absolutely put it on fire and made it go even further. All right, mate, so how does zones come into play with this, with industrial property? Okay, so similar to residential, like you’ve got council zonings of kind of what’s allowed and what’s not allowed, but One of the biggest things for me is you can actually buy a really low risk industrial property.

Like for instance, if you buy, say in an industrial complex, that’s surrounded by residential property and that residential kind of area is growing in the terms of population, there’s just going to be more and more demand for your industrial property because there’s more people there. They need more services, spray painters, panel beaters, storage, things like that.

And you can’t just go out and build more warehouses. If you’re surrounded by residential, it’s just not economical to buy out hundreds of houses. to build warehouses. So you’ve basically got that scarcity factor, which is what you really want with any type of property that you buy. And that’s also going to give you more capital growth.

Yeah, that’s right. And I guess councils don’t really want you throwing up a few tilt slab warehouses. It’s all through their residential plan. It can only make it so dense with residential. So it’s actually a fine line as well, because they need the infrastructure to go in to be able to handle the population growth.

And to have that, you need the services. So you actually need like the fabrication, you need the storage, you need the warehouses. So it’s actually a balance. And this actually happens sometimes in a lot of markets with commercial is they’ll build the infrastructure first and then all the commercial properties will have a higher vacancy rate.

But then the residential population growth can actually come because they’ve got the facilities there to do it, then it grows, and then it almost turns on its head. It goes, the residential guns get supplied and then all the vacancies fill up. And then it’s the other way commercial grows and residential halts.

Yeah. And I guess like with, uh, industrial as well, you do have some service businesses. That actually work out of it. Like, you know, your mechanic shop, your tire shop and things like that, that need to be there for that residential population. Yeah, exactly. Right. And that’s probably most the investments that people are going to be looking at.

They’re going to be looking at the kind of residential based ones again, assuming that to keep it low risk, like you can go out and buy very regional and things like that, but there’s going to be risks with that in them in terms of them releasing more land and building more competing warehouses, but sticking to like a capital city or a highly density populated area will reduce some of the risk.

Yeah. And it just comes back down to what’s the supply and what’s the demand in the area. And then what’s the population coming in as well. Yep. Exactly right. So same, same as residential, you need to look at the macro and the micro driving factors and then make your decision from there. All right, man.

Well, I think we’ve gone basically covered everything about industrial right now. So let’s move on to retail. Okay. So retail, I’ll give you a definition. Retail is defined as the sale of goods to the public in relatively small quantities. For use or consumption rather than for resale. So we all kind of know what retail is, but then when you actually say it like that, it actually makes sense.

So it’s not just like a wholesaler selling stuff on, it’s where you’re selling individual to the public. It’s quite common to hear like that retail spending down, but just take that with a grain of salt. They’re talking about global kind of scale type stuff. They’re not talking about your suburban retail.

So that might be like your local cafe, your medical center. Your barbershop, your massage parlor, things like that. It’s different scale and different drivers. And most of the time those suburban retails are actually doing quite well at the moment with COVID. Yeah. So there’s a big difference between like retail is not all the same, obviously.

So you have your big Westfields that’s retail, but then you have, like you said, your suburban retail, like four or five shops that are stuck together. And those are the type of assets that are totally different and have different subsectors and different. Vacancy and also different demand. Let’s just drill down into the suburban retail right now.

Why are they so hot? Yeah, exactly. So like when they’re big news headlines about kind of retail being down, they’re talking Westfields and those ones like no offense to the listeners. Not many people listening to this are going to be able to afford to buy a Westfield shopping center. They’re going to buy one of the local shops.

And the main driver for that at the moment is because because of COVID and they’re working from home culture, everyone that used to be traveling in the CBD to go get their services of retail, like the hairdressers and local shops and even little supermarkets and things like that, where they’d get it at work on the way to and from, or on their lunch break, now are working from home a few days a week.

So they’re attending their local kind of retail shop. Just me personally, I’ve got a cafe up in Brisbane. His business has doubled since COVID started because everyone’s now going to their local cafe to get coffee. As opposed to the CBD one. So there have been some winners in this COVID thing, but again, there’s been a lot of losers, but again, you need to assess why you’re buying, where you’re buying the local demographics, the medium income levels, the traffic volume, the site configuration, the density of the retail, who the tenant are and the mixes of tenant, what the traffic’s like to the area, what the parking’s like.

So again, like storage, like warehouses, there’s a lot of nuances you need to get your head around. And with retail, there are a few different things that can be passed on to the tenant as well with the outgoings. Can you let us know about that? Yep. So similar to the other ones, they’ll generally pay your council rates and your water rates and things like that.

It’s worth mentioning though, that retail leases actually has a specific legislation with Australian state and territories with the other types. It’s a little bit of a wild west where the lease is generally just like a rule book that you both follow and you can kind of come guns blazing with whatever you want.

Whereas with the Retail Leasing Act, you do need to follow a few rules. So it generally stipulates things like, um, you can’t pass on your land tax to the tenant or expenses that don’t benefit the premise or things like body corporate fees, any capital costs, legal expenses, property management fees, and things like that.

However, everything else, like the typical outgoings that you’d normally pay, the retail tenant can still pay it. One of the things that is cool about our retail property is that the insurance of, say, the plate glass front window can actually be, you know, you can pass that cost onto the tenant there because that’s their business.

Yeah, and their livelihood of their business depends on the presentation of the property. I’ve personally had tenants that actually have renovated my property free of charge. So they’ve actually contacted me saying, Oh, do you mind? Like I’ve got a couple of freestanding ones. Oh, do you mind if I paint the building and change the facades and things like that?

And I’m just like, bloody hell, go nuts. You’re, you’re basically increasing the value of my property and it’s costing me nothing. We would refer to that as a fit out, Steve. So can you explain like how fit outs works? Like sometimes you don’t get that where they don’t pay for you. Can you explain how like make good clauses and things like that work for retail?

That’s going to come down to the type of kind of retail that you’re buying. Each of them are different. And most of the time they’ll actually be in negotiation. So if they’re adding value to the property, you’ll share costs or you might get them like a rental incentive or something like that. But then, like you said, make good cost is when the tenant leaves.

The property, what condition do they have to leave it in? So that’s very easy for something like an office space, but with retail, you don’t know. It could have a big medical fit out. It could have kitchens because it’s a cafe and things like that. So sometimes you want to keep it. Sometimes you want to scrap it to an empty shell and that you need to be mindful that when you’re buying it, you need to look at who actually owns that.

And what the make good clause in the contract is. Yeah, that’s it. So with all the different types of retail property, we’re talking about like cafe kind of thing now, but this can be a huge value add to the property as well. Like if you talk about a medical business, what kind of a fit out can be put into a medical retail asset, Steve?

Yeah, so just getting a medical tenant, if you buy a property that didn’t have a tenant and then you get a medical tenant, you have increased the capital on that property straight away, just because they’re very attractive tenants, they’re seen as a low risk one as well, because they do have to have an expensive fit out like on a small medical center.

You’re talking hundreds of thousands of dollars of fitting it out. So they’re unable to actually leave the premise unless they’re going to have fork out a huge cost. So really sticky tenants and long term leases as well. And that goes for all types of medical though. I’m talking like GP clinics.

Specialized centers, pharmacy, things like that. So you touched on it a little bit there, Steve, where you were talking about the type of tenant changes the value of the property. Can you explain that a little bit more so we can really understand why you would want a better quality tenant in your property?

Yeah. So basically the perceived reliability of the tenant is going to attract buyers. So similar to residential where you have a really nice fit out on the property or renovation on the property, you’ll get a different class of tenant. People will look at the type of business that you’re getting. Like a medical tenant will have a slightly different sale price to say like a kebab shop next door, which is slightly different to say just like a accounting firm that operates out of a retail premise.

Yeah. So you’ve really got to look like back from your point of view as the buyer, what type of business and tenant do you want in your property? Do you think a cafe is more stable than a medical, like a doctor’s office? Like, obviously not. You would prefer the doctor’s office. And if you can get that type of tenant into your retail property, then the perceived value or the capitalization rate, which we’ll talk about later.

We don’t have to understand it right now. We’ll go down, which will make the property value go up. And we will explain that in a later episode. Yeah. And one of the points to note is like, when you talk a medical tenant, the type of property can change dramatically. Like a medical tenant could be like, we’ve all seen like the suburban ones where it’s a converted residential property that then now has a medical, like a GP clinic in it.

So that is going to be completely different to like the one in the suburban strip mall. Where you walk past and it’s part of, it’s got big glass front, like you mentioned before. And then that’s completely different to say like one in office tower, which is like a specialist like orthodontist or some other type of specialist doctor.

So each of them are going to have their own nuances there. Then they’re going to have different fit out costs. The age of the business is going to be different. Foot traffic, road traffic will be different. Like all the other CODOPSA commercial, you need to analyze it on a case by case basis. Yeah. It just can’t be compared to just to anything.

So there are so many different types of medical business, like you were saying, and they are highly attractive. Like if you see a medical business listed and you ring the agent, they’re going to say, look, it’s going to be a lot lower cap rate then than the actual market because of that tenant. And if you don’t want to pay it, then you can go somewhere else.

Some of the ones I’ve been seeing recently, you know, when you’ve got the suburban retail strip. The medical will be on the second floor. So it might be like a GP clinic or dental on the second floor. They may look really attractive because you’ve got a medical tenant, but what you do need to be mindful of, even though there might be a sticky tenant, if they leave and you don’t get another medical tenant, You’re basically left with an overpriced office space because that doesn’t have the retail glass front.

So you don’t get the foot traffic looking at it. That is a more specialized space. So similar to the kind of the office ones where there might be in a high density office space, just be mindful of what you’re buying and always plan for the worst case. If they’re going to leave, can you turn into this very easily and how versatile are the premises?

Yeah, that’s a really good point, Steve. Well, you have to make sure when you’re looking at your investment, how many uses can you have for this property? How many different uses can you have in case of the worsening in commercial property, which is prolonged vacancy? So as you said before, if you’re looking at a medical property, it’s already got a medical tenant in there and the lease is actually quite short.

Well, you want to make sure that they’re probably going to re sign that lease. Before you go into it, because you will be overpaying compared to the market for that actual tenancy. And if they’re not going to resign that lease, then you’re literally just buying a really high valued office space. If it’s the second story and the fit out might be in such a way where.

It’s going to cost you a lot of money to actually rejig it back into more of a usable office space or retail property. So there are so many things. This is why we’re doing this podcast and why Steve wrote this book. There are so many nuances and things that you need to know and understand. If you’re investing in residential property and you’re an absolute gun, don’t think that you can just cross over without knowing the ropes of commercial property.

First, these are so many different things that we need to understand and go through to get your head around. So you don’t make big mistakes. Spot on, Andrew. All right, mate. So let’s move on to the other class of retail property, which is a hospitality business. Okay. So hospitality, we all kind of know what that is.

That’s generally things like food restaurants, takeaway services, things like that. The suburban ones are generally known as stable businesses and they’re always going to be popular. People are always going to want takeaway foods and coffees and things like that. So depending on the location, however, they’re sometimes subject to seasonal changes though.

So some areas, especially like holiday destinations, they make the major, majority of their profits over summer. So you need to be mindful of that, that it might look good on paper now, but you need to check how the business is going to operate at different times of years. Some tourist areas and CBD locations have been hit hard because of COVID.

So you need to be mindful of that. So, there’s a little bit more to kind of hospitality type businesses compared with like a medical because how the business operates, where it’s operating, the area that it’s servicing, all going to come into play. Yeah, that’s it mate. How about service businesses? Where do we need to look out for that?

What do we need to know? Ah, so service businesses are things like hairdressers, barbers, nail salons, beauticians, massage parlors, things like that. It’s where you need generally a face to face contact point. So presentation of that property is paramount. They will not disappear until we somehow get robots that can do all these skills.

They will be in demand. So buying those suburban retail service businesses are quite lucrative at the moment. And to be honest, that’s actually a bulk of what I’m actually currently buying for clients in the retail space. You need to look at the fit out cost though, because they’re all going to have a different fit out cost.

Uh, hairdresser. is going to be completely different to a nail salon because that’s just a few kind of desks sitting there, which is completely different to say like a massage parlor because they’ve just got a couple benches and painted walls. So you need to assess that when you’re looking at each deal.

Yeah. So basically this is a destination type retail where you have to go there to get the service. You cannot get this online and that’s really what makes them such good tendencies and good properties is that if you don’t go there, you actually can’t get the service. So a hairdresser, you can’t get that cut online and that is never going to go away.

Everyone is always going to need to have their hair cut. People always want to get their nails done and have massages. So it’s one of those things that It’s actually a really good type of asset. One of the things that you need to look at though is the location and the foot traffic, Steve. So let’s talk about the foot traffic and location we need to look for.

Yeah, so this is another nuance with commercial property. It’s not like residential where like the foot traffic actually doesn’t matter. Some suburbs, they actually really want the property to not have a lot of foot traffic because they want it to be like a quiet suburban area. But foot traffic is paramount with suburban retail.

And the only way you’re actually going to be able to analyze that is actually by physically going there. So if you’re buying, say interstate, you need to talk to property managers, get people on the ground before they buy, just to make sure what the type of foot traffic is. Cause that’ll mean the longevity of the business.

If it’s a bit of a ghost town and the area doesn’t have any vibe. Those retail strips have remained empty for a long time. If it’s a really buzzing area, you know, you’re probably onto a winner. And so there’s a big difference between buying a retail property on a main road, on the main drag of that town or that city, than buying a little retail shop in the back street.

Like it could, it might only be. a hundred meters away. But like having the one on the main road and having one on the back street will incredibly increase or decrease the amount of each property and the likelihood that you’re going to have large vacancy. Yeah. And the, the purchase price that you pay for it and the yield that you should get it from.

So that’s a good point to note, Andrew, you actually can’t compare the price that one two streets back sold compared with one on the main street. They’re completely different assets and they’ve got different drivers. One of the points to note is even on the main drag, sometimes like with retail and suburban, in suburbia, you might have a car park down one end of the strip.

Funnily enough, the ones towards the end of the retail strip have higher vacancy rates than that first, like two to three thirds of the property, because people are lazy. They walk to kind of two thirds of the way down, then they turn around. So they actually have less foot traffic. So you need to be mindful of things like that.

Another funny point is, So, um, regional properties, some regional properties and their suburban retail have tighter vacancy periods than CBDs, for instance. And one of the main reasons for that is most regional areas, they only have one main street. So what’s there’s there and the tenants are sticky, they’re loved by the local community.

They don’t go anywhere. Like most of the ones I look at in like the Blue Mountains and the Tamworths and the Coffs Harbors and areas like that. The same tenant has been there for 20 years and there’s been zero vacancies there for 20 years. So sometimes you can get really good quality stuff regionally in retail space where something like an industrial, you need to be much more mindful of vacancy periods.

And it just basically comes back to the supply and demand in the market. So in that regional town that you’re talking about, the supply of great retail locations with very, very good traffic across it. Is a lot lower because they’ve only got one main street, but in say, like a CBD, like Sydney, there’s going to be a lot more supply of those types of properties.

So there’s a lot more options for the actual tenant to move. So you’ll find that the tenant, like Steve said in the regional area, why would they move? They’ve already got a great location. They’re building up their business there and there’s nowhere else to go. So that’s why tendencies like that in a regional area that, you know, have really good foot traffic.

In the only main road in the, in the actual town and the town’s growing, it has great economic drivers is sometimes a lot better investment for like in terms of commercial property and getting a higher yield than going after that property in the CBD that potentially could go vacant because there’s a lot of options for the actual business.

Yeah, exactly. And another point to note is this is also a pro and a con is most of the time in those regional areas, the buildings in the main have some form of heritage listing on them. Yeah. And the positive of that is actually it means you can never have an oversupply. They can’t actually knock them down and build a big Westfield for instance.

So that is going to be there for the long term and you get the security that way. Yeah, and I think one of the main themes that I want to make sure people understand Is that you have to put yourself in the eyes of the business, if you can do that and you can make sure that you have all the things that tick the boxes for the business, then generally you’ll be actually be pretty right.

So if you take yourself back and think, what would the business owner want to make this business amazing and figure out what type of business you want in that property, then you’re generally going to be pretty well off. Yep. Spot on. I hope you’re enjoying the show. We’ll be right back after this short break.

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. All right, mate. So there’s one more type of retail property, which is kind of your general type of property.

Do you want to talk about that for a little bit? Yeah, so the general retail covers a wide range of properties and businesses with different needs. So I’ll go through some of them now. So the first one we all know about is supermarkets. So large supermarkets are too expensive for the normal investor and they generally got a low yield because they’re considered low risk.

Whereas most of the investors listening to this is going to be looking at the smaller supermarkets. They just generally offer convenience. So they go to this when you need like a two liter milk or just a loaf of bread and things like that. So they service the local community for smaller goods, as opposed to the big retailers.

And then similar to that, same as like bakeries and butchers. So. They were stable 50 years ago. However, there’s been a slow shift away into the larger supermarkets at the moment. But locally, and like we mentioned in regional towns, these are still a really good asset to focus on. Another one’s news agencies.

So the old former news agencies are typically dying. People don’t go in there as often to do their things and buy lottery tickets and newspapers and things like that, like they used to. So they’ve died, but most of them actually shifted with the online market. So there are a lot of times they’re like pick up and drop off locations for your ASOS shoppings and online shopping purchases.

So they can be good as well, but just be mindful 20 years. Then there’s things like specialty stores, that’s bookshops, jewelers. Discount stores, gift shops, hobby shops. These can be great or terrible. So as you mentioned before, Andrew, you just got to analyze the existing tenant and why they’re going to be there long term before you make that decision.

And another one’s childcare centers. For some reason, people absolutely love childcare, and they always sell at just exorbitant prices, which I don’t understand. It’s perceived as a basically a low risk investment. Everyone thinks, oh, everyone goes to work, things like that. That shift is now slowly changing with people working from home, and there’s actually less of a need for childcare centers.

And similar to the medical, If their tenant actually leaves, you’re generally just left with an empty shell of something you’ve overpaid for. So just be mindful that if you are looking at child care centers, they’re not all as successful as you think they are due to like tight government restrictions with the carer to child ratios.

They’re actually quite hard to make good money as a business. I totally agree with exactly what you’re saying with the childcare center. It definitely has one use, but having kids myself now, I have a three year old and a five month old baby, and I know how hard it is to get our child into childcare. And now, my personal view is slowly changing for child care.

It’s not for everyone, and I’m not saying they’re a really hot asset for my personal view at the moment, but having kids yourself, like, there’s no way we would ever take our child out of child care. Like, there’s just no way, and they’re 100 percent full all the time. I think they are a type of asset that sometimes is hard to add value to, because of the amount of children that you can have.

In the actual facility, because there are regulations and things like that with council. So it’s, it is a hard business potentially to increase the business over and over and over. But my view is slightly changing on childcare. Steve, I was totally 100 percent against them. prior, but just through this COVID period that it’s changing us slightly a bit more in my favor.

Yeah, you just got to be mindful of the type of facility you’re buying into though. So like, I always bring it back to fundamentals. If the child care center has a land component, I know that’s always going to have demand, but if the child care is the fourth floor in the office building. That is fairly one dimensional and if you lose a tenant, you’re basically in a struggle.

You have to get an office tenant. So like everything just assess what you’re buying and where you’re buying and its versatility for the future and then make a decision from there. I can picture exactly what you’re talking about where there’s an office building. It’s a smaller office building and then there’s a child care on top.

There are obviously different types of child cares that are better to buy and then others. But the, um, the childcare that we send our son to, it’s a beautiful childcare in right in the middle of a residential area. Um, and I just, I could never imagine them going out of business, but there is, is that a purpose built building or is it like a converted residential property?

It’s a purpose built building next to a park in a really dense residential area. a higher class area and it was extremely hard to get him in there. We pay a lot to have him there and it’s a really, I think with a child care as well, you have to actually go into the business and actually see how they’re operating it.

It does change when you have kids, your view on child care, I think. And I, yeah. One of the points to note as well, child care signed very long commercial leases. I’ve yet to see like a one or two or three year lease. We’re talking seven, 10, 20, 30 year leases. Yep. So that’s good. It’s good, but then generally the yield reflects that as well, Andrew.

So like most childcares at the moment are selling for 2. 5 to 3. 5 percent net yields. So you need to balance, is buying that better than say buying a 5. 5, 6 percent net yield, where you get almost twice as much income from the property. So even in five years time, if your property then sits there vacant for five years, you’re actually in the same net position.

Much with everything way up the capital growth prospects for what yield you’re getting. But like you said, they, they can be low risk in the right location, right demographic, right areas. And you have to be buying them at a right price. I mean, when you’re talking about like two, 3%, like no one in their right mind would usually probably buy that.

People that are listening to this podcast probably aren’t going to be buying that kind of stuff because it’s going to be better off. We’re buying a really, really secure asset. With around a 6 percent return with a good business involved. But as I said, like it’s a case by case basis, it’s not for everyone.

And they are a type of property that only has one use generally. So that’s not good. Yeah. Have you, have you found any more like vacancies in terms of like where you can like put the child since COVID or is it kind of not had that flown yet? Cause they’ve had a big kind of waiting list. No, there’s never any vacancies in any of the child care that we’ve been in contact with.

If you want, even when you want to change a day, because you have to have the child on a certain day, you can’t just throw them in whenever you want. You know, it’s very, very hard to change days because they can only have a certain amount of children on site at any one time. So, I’m not going to make a decision on whether I like the them on not right now, but my idea about them is slowly changing after I had kids.

Yeah. And it’s just got to do with the type of property. Same as medical. Like I love medical, but I rarely buy them just because they’re too overpriced. Yeah. Fair enough. All right. So is there anything else we need to talk about for a retail property or should we move on to the office properties? No, let’s, let’s move on to office properties.

I think. All right, mate. So, office sector. Very, very interesting sector. Used to be the darling of commercial property back quite a while ago. It was the, is a place to be investing. Can you tell us about the office sector? All right. So, offices, they actually can be retail spaces. So, like all those suburban retails we spoke of, you can actually have an office space tenant in those, but those, because they can double as a retail, they’d just be considered retail.

So, like The local, you might have the local law firm or accountancy firm or even things like a mortgage broker or mortgage house that could be in a retail space, but offices are generally considered an office if they have more than 75 percent of the interior fitted out as office space. So that, that’s the common definition of industry.

They’re generally got a low cost fit out as well, because it’s just some cubicle walls, carpeted and kind of a few painted walls and paintings and plants around the place. They can vary much like the other ones. They can be single story, suburban buildings, high density, 20 story skyscrapers, city towers, things like that.

And then you can subclassify them into different ones. So Collie is one of the largest international commercial companies in the world. They classify building heights as low rise, mid rise and high rise. So low rise is fewer than seven stories. Mid rise is seven to 25 stories. And high rise is 25 stories plus.

Yeah. Wow. So man, what about the different subcategories of office, like your suburban office compared to your CBD office? How do they differ? Yeah. So the local suburban one will service the local community. So that’ll be kind of like for more of the mom and dad type clients and clientele, whereas the CBD one, because they’ve got the infrastructure of trains, buses, the high density.

That’s generally where the large corporations go, like it’s, there are not many small companies will go into the CBD because it is a high cost to get into it. They’ll go in that kind of middle to outer ring. However, as you know, all that’s changed since COVID there’s, there’s been a kind of dress oversupply now because most people only going back into the office two or three days a week, which generally means there’s a 20 to 40 percent kind of vacancy period.

So there’s going to be a shift in the mindset of how office space. Spaces need to work moving forward. Yeah. Well, the working from home movement isn’t going away. I think we all know that. And one of the other things that we didn’t touch on was, is that actual subject about retail property as well. So the working from home movement is spreading people across Australia, particularly in the coastal areas where it’s a lot more nicer lifestyle, your suburban office space in those locations, your retail properties in those locations.

are becoming a lot more desirable because the population is going there and they need the infrastructure of cafes, like working from home is great, but you do need human interaction at some point. So you might be working at home in your home office, but you do like want to run down to the cafe to grab a coffee.

And if you’re living now on a coastal area, because you don’t need to be right near a CBD, because you have the option of working from home is only going to make those regions. In more coastal working from home areas, more popular. And those businesses more attractive now. Yeah. And most of the large businesses I’m actually speaking to, they’re, they’re all adopting what’s called the hub and spoke model now.

So basically they’re going to have this smaller city office and then they’re going to have much smaller satellite offices kind of around. So you’ll have like for Sydney, for instance, you’ll have like the parameter one, you’ll have the Penrith one, the central coast and the Wollongong office. The benefit of that is because people only go on in two or three days a week, you can actually spread out your talent pool because previously where they had to go into the city and workers couldn’t be bothered to go traveling an hour and a half, two hours commute.

If they’re now only going to travel say half an hour to their local office, two or three days a week, you’ve actually got a much bigger class of talent pool to choose from. So that’s one of the benefits there. But then office cultures changing as well now, like as we’ve seen recently, there’s a bit of a changing demand with office space, like technology is playing a huge role with the changes of the office.

Like it’s become clear that like physical space is less important now, and there’s a shift to more flexible working arrangements and locations. And this has only just been accelerated with COVID obviously. There’s a shift away from the more traditional use of office space. And there’s more creative ways and socializing and in person exploration that’s kind of in the offices.

And this is affecting the layout as well. So they’re doing more open plan, more facilities as well. So they’re offering like yoga studios, child minding, things like that. They’re doing everything they can to entice the workers back into the office. And the technology around this, like Zoom’s taken off hugely, and that’s been a really big driver in the working from home movement.

And things like that are probably coming in the future, like the metaverse, David, I know we want to touch on on the metaverse, but who knows what that’s going to be. But that could be a huge change in the way that we do office space as well. I’m actually a big believer in the metaverse and people laugh at me when I talk about it, but as we’re talking about, they’re sitting there holding their phone on Facebook, which is effectively just a 2D metaverse.

So Is it that unrealistic to expect that we’re going to have a 3d one? No, I don’t think it is, Steve. I mean, the way that Meta, Facebook are talking about it, cause they want to be the main people who bring this to fruition, you’re going to be able to sit in your home office and it’s going to feel like you’re in the office next to the person that you’re talking with in that meeting.

There’s going to be touch and sound that if they can pull it off, it’s going to totally change how we think and understand and use office space. And that could be a major shift. I don’t know when it’s. coming to fruition in the next 10, 5, 10 years, but it’s definitely something that you need to watch as well.

Yeah, it will come like imagine 50 years ago telling people that you hold this little device in your pocket all the time and anytime you want to talk to anyone across the world face to face with video, you just press a button like that would have seemed ridiculous. So Once we get full immersive technology, it’s the whole game’s going to change.

Yeah, I totally think it is coming and it’s definitely one to watch. And as you said, like the things that we have now, 50 years ago would have been mind boggling. You know, you couldn’t even conceptually think of it in your head and what we can actually do with an iPhone now. So it’s a very, very interesting space and it’s a huge topic and it’s.

It’s a whole, probably another podcast series to talk about that and how it’s going to actually change the way we do things. So yeah. And spot on, especially in the office space, that’s going to be the main one. When you don’t actually have to physically go into work to see people, that’ll change it. Like we mentioned with suburban retail, people are still going to need haircuts and things like that until we have robots to do it, but something like an office where if you can sense body language and feeling and sounds where they’re coming from, that takes a big portion.

Now they’re actually physically going in part of it. Yeah, I totally agree. All right, mate. So are there any other types of properties that a listener should know about? So there’s a few more creative ones. One of them is multi family properties. Basically, there’s a category that covers all types of residentials outside like the standard single family home.

So that’s like a block of apartments, boarding houses, and things like that. Each of those have obviously got their own subcategory. You’ve got the high rise, mid rise, special purpose ones. So that’s things like… Students or retirees or subsidized housing, things like that. Another one’s land, and this one doesn’t obviously get spoken about as a commercial property, but land, you can still generate a profit off land.

So that can be things like greenfield land, which is like farms and pastures where they run like cattle businesses and things like that. Infill land, which is basically where you buy it and you can rent out the space. So that just might be a block of land where you can actually build things like car spots or hard stands, for instance, like we mentioned before.

And then there’s like the brownfield land. So that’s things like my old industry, like mining and things like that, where they actually dig it up and use the actual land itself to make their money. Another one is hotels. We all, most of us stayed in a hotel before. Be a bit more mindful of these ones though.

So typically if you’re buying a whole hotel, similar to kind of your Storage, Andrew, it’s a business. You need to be very mindful of the operation of it. Who’s running at occupancy levels and changing the rents depending on the size and how many is available and things like that. You’ve got the different types of hotels as well.

You’re like the full service ones, the Airbnb type ones, the boutique hotels, resorts, and things like that. Be mindful if you’re buying a room in a resort. There are so many red flags with those, which we won’t go into, but it’s basically higher risk than buying off the plan. And there’s just little tips and tricks, like just something I had a client who bought into one, not through me, but he bought it himself.

And just changing the duvets and the pillows in the resort costed him 3, 000. Yeah. Like it just, they, they share the cost. And he’s like, what’s his cost from? They’re like, Oh, we changed the dunas. And he’s just like, this is ridiculous. So you don’t have any control. So just be mindful of that. They’ll sell you with the glossy magazine, but that’ll be generally about it.

Yeah. So, I mean, the hotels and motels are a business. It’s not a passive investment. And one of the good things about these properties as well is you do have a lot of different value add options and drivers. So with a typical lease, a motel can be extremely long. You know, it could be a 30 year lease on a motel or hotel.

And they would consider like six or, you know, nine years left on that lease to be not very long. It’s a short lease. Like it’s not as desirable. You might be buying something that you think has a six or nine year lease. And in our world of industrial and retail, that’s. Sounds great. But in a motel, hotel world, that’s really short.

So you really need to know this industry before you’re jumping into it. Yeah. There’s this so many nuances and imagine if you’re a hotel owner and you got to enter your lease and then the owner kicked you out, like there goes your business. Yeah. The one thing about this motel or a hotel that is actually quite interesting.

If you do know how to run the business, you can find an underperforming business, take it over, and then you can improve the business. And then you can actually put a lease on that actual business for someone else to run that. And then you can have it like a passive investment. It’s quite a good strategy.

And I know a couple of people, one family in particular that have been doing that for three generations and they’ve made it very, very profitable for themselves. Yeah. And you, you do have to know what you’re doing and lending is a little bit harder for them as well. Banks, banks generally look under with a kind of microscope.

So just be mindful of that. But, but in addition to that, like there’s other special purpose kind of buildings, like you’ve got things like activity centers and indoor sports centers, petrol station, car wash centers. I saw a theme park for sale a couple of months ago, marinas, movie theaters, funeral homes, churches, all that type of stuff.

They’re all commercial properties that you can actually buy. I’ve actually bought some funeral homes. And for, before for clients, again, you just got to understand the market and the niche that they’re in. Yeah, I guess everyone dies. So they’re going to have a good business, aren’t they? Unfortunately. So what about the difference between a freehold?

Do you want to try and explain that to us? Yeah. So this is a bit of a more complicated one and a bit more rare compared to residential, but freeholds are the most common form of property we know. That’s where you own the property. You own the land outright, all non movable inclusions, such as the building.

Things like that you own, as long as they’re within council regulation. However, in contrast, a leasehold property, as the name suggests, there’s actually a lease on the property owned by the crowned, which is basically the state, so what the state you’re in. With this type of property, in quotations marks, you own the land, but it’s only for a set time.

And so changes to the land and property are subject to local government legislation. And needs to be approved by the crown, i. e. the state. So they’re not as common as kind of freehold titles. They still are around, like a lot of times, like they’re in marinas and things like that, or ACT, every single commercial property in ACT is actually leasehold.

And that can have things like tourist areas or bear mining interest and things like that. So be very mindful when you’re buying into a leasehold, it is possible to buy out a leasehold if you kind of work with the government, but again, it’s just another spanner in the works, you need to get your head around.

Very interesting. And you can also buy into a leasehold as we were talking about before with the motels as well. That’s also an interesting way to do things. So Steve, you touched on one of the types of properties that is actually quite an interesting asset that I actually was really going after for a while looking at, and that’s a multifamily and we don’t generally use that.

Terminology in Australia, it’s more of a U S based terminology, multifamily. And basically what it encompasses, like Steve mentioned before, was it could be an apartment block or a small group of like a triplex quadplex or something like that, and that it’s usually on one title. And that’s. actually quite common in America where people will buy huge apartment blocks, multifamily to them, and it will be on one title.

That’s not always the case in, in Australia. Some more regional places in Australia do, you do find these type of properties that have one title for, you know, say six or 15 properties on there. And that can be really good cashflow investments. If you, you know what you’re doing. Strata titling was created in Australia and it’s become more of the norm on strata titling these apartment buildings so you don’t find them all on one title and it’s not really a cash flow play in Australia when they’re developing these properties and building them.

Yeah, exactly. And when we’ve got little apartment blocks as well, even though they’re a residential property, even the ones that are strata title, if you’re buying the whole property under one title, banks will actually look at it as a commercial loan. So some, some different lenders have different amount of things like some of them are.

If it’s got three or more or five or more different units, but they will have to give you a commercial line, which is interesting. Yeah. And they’ll value it differently as well. They’ll value it using a capitalization rate like a commercial property. You can find these properties around. They’re not totally, you know, under a rock.

But one of the good value add for these types of properties too is to find it, increase the value by renovating a little bit, and then actually strata titling if it is possible on that building, which can be quite a big cost as well. And then selling them off as individual units at the highest rate.

That’s actually quite a good value add too for these types of multifamily properties. Yeah. Cause you’ll effectively get a better price when you buy it as well, cause you’re somewhat buying in bulk. So again, make sure you’ll obviously make the money on the way into the deal and then do the. Do the value proposition and then get out of that way.

And I think there’s actually one other type of property that we haven’t mentioned, Steve, and that’s your car wash and petrol station stuff. Do you want to talk about that quickly? Yeah. So they’re very nuanced top properties. So things like petrol stations. You need to be just mindful of where that property is going to be in 20 years time.

So if you think that electric cars are going to be the norm, petrol stations might not be the best investment. And I’m actually finding that with yield. You can buy some petrol stations on very, very attractive yields at the moment. And that’s just because I think a lot of people are realizing they might not be around long term.

There’s also risks with them as well. Like if you can’t develop the site very easily because of the environmental protections and basically the land can be contaminated. You’re talking hundreds of thousands of dollars before you can even build something on that land. So just be mindful of things like that and where the business is going to be in the next 20 years.

Yeah. This type of property is definitely a specialty type of property that you need to know what you’re doing. If you’re buying an old service station, you need to know if the tanks under the ground have been removed or not, and you need, they need to be certified. And if there’s contamination, it can be a bloody nightmare if you’re doing this and not understanding what you’re buying into.

On the other hand, service stations have a great. Way that you can add value by adding in things like food trucks on top of the land, mechanic shops and things like that into the service station. There are a lot of value add drivers that you can do on a service station property, but you really do need to know what you’re doing.

And it’s not a typical investment for your general mom and dad because they are usually quite expensive. Yeah, exactly. And you do need to make sure it’s a profitable petrol station as well. If that tenant ever leaves. It’s very unlikely you’re going to get a tenant quickly because not many people are going to come and jump on a failing petrol station.

Yeah, like there are literally people that do businesses, consultancy businesses, that help people invest in service stations. That’s how specific it is. You need, there’s all types of things of who you’re buying the oil from and what kind of rate you’re getting. Things like What brand you’re using and things like that.

It’s a whole different kettle of fish and needs to be understood if you’re going to jump into that realm. All right. Well, that wraps up episode two of the commercial property investing explained series. Steve, we have a few free giveaways to go along with this series. What are they and how can we get our hands on them?

Yeah, that’s right, Andrew. So I’m actually giving away my hard copy of my book. So it’s 250 pages of hardcore commercial property investing facts. So. To get a free copy, just go to my website, www. policeyproperty. com and use the code word podcast and I’ll send out a copy within the week to you. On my website as well, there’s plenty of free resources that we’ll be referring to on other episodes of this podcast, spreadsheets, property plans and things like that.

So feel free to give them a download and go through and play with some numbers. So mate, I saw that you have a LinkedIn blog as well. Would you want to tell our listeners about that? Yeah. If you want to go to my LinkedIn page, my personal or company one, basically I do a monthly LinkedIn article or newsletter, just giving you fun facts and what the industry is doing.

Some of my recent acquisitions and things like that. Awesome, mate. Definitely a good resource there. All right. We’ll stay tuned for episodes. Three coming out soon where we explain all the numbers behind commercial property. And this is where it really gets interesting and why I personally believe that commercial property is the best asset class out there.

So this has been author Steve Polisi and Andrew Bean on the commercial property explained series where your education is. Always Steve’s responsibility. Thanks for that mate. Thanks for listening to the Commercial Property Investing Explained series. This show has been produced by the Commercial Property Show Network.