investments in 2022 through to 2032 - Property Inc

[ Podcast Transcription ]

Inside Commercial Property with Rethink Investing. Australia’s largest and most comprehensive podcast covering all things commercial investing.

G’day, how are you going? Phil Tarrant, co host of Inside Commercial Property with my co host, Scott O’Neill, director, founder of Reefk Investing. Scott, how are you going?

You well? Yeah, very good. Thanks, mate. Very good. I’ve been following you on the social media recently, mate. Looks like you’ve been in the wars a bit. Yeah, I decided to break my elbow pretty bad down in Melbourne. So just, I was at that surf camp, urban surfing, and they, um, just rushing in between sessions.

So I was just rushing and, um, jumped over a little fence. It was only about a meter high. I think I, I just lost my footing as I was jumped and then I landed straight on the elbow and it dead set shattered it into like five different spots. So I’d, uh, rush off to the hospital. I tried to pop it back in cause I thought it was just poking out in a funny direction for a while.

So we’ve got some mates too. Google tutorials, how to unpop shoulder, sorry, elbows rather. And that didn’t work. So then, um, yeah, we reluctantly called the ambulance because that meant that, um, I missed my plane. They said an hour and a half. So we just got in a cab and then went to sunshine hospital. Yeah.

Three days later, a different hospital later, ended up with a carbon fiber elbow out of all that. So. Bionic, the bionic commercial property buyer now. So, so when they do the op at the other hospital, do they? John Faulkner, yeah. Cause it was going to be a long wait at Sunshine and it was sort of specialist treatment.

So, and the other little lesson is like, I wasn’t insured properly. I just had like a basic boot for cover. And so, uh, yeah, it’s, uh, tens of thousands of dollars for that type of stuff. So. Find a good person to do the op though, or you just go, whatever comes, they bolted it in. Yeah. Oh, look, they seemed really good.

So I got nothing to compare it to, but, uh, yeah, it was, I was on a plane the next morning after surgery. And that was, uh, that was the end of it. So I just got a long recovery of physio and all the usual stuff. So yeah. How long are you out of the water for? Well, when we did it. No, how long are you out of the water now before you can sort of get back?

I don’t know. It’s probably about six weeks before you can start putting weight on it. And then, um, like with elbows, it’s all about like a range of motion. So you’ve got to be able to bend it to the normal amount. So hopefully within a few months that’ll all happen. And yeah, you are light duties for a while.

How was your wife? Was she just sort of like, Oh God, come on. Boys will be boys, right? It was our wedding anniversary that Arvo as well. So I figured the timing was a bit off, but, uh, Oh, you were supposed to be back that day, were you? Yeah. Yeah. For our six year wedding anniversary. So, um, I spent that in a hospital in a, in an ER ward, listening to all sorts of crazy stories and injuries and.

Drug problems and all that kind of stuff, just, uh, in a bed awake at night. So . But, uh, no, it was a good experience, not to do it now anyway. Well, that’s not the only thing that’s going on at the moment, Scott. As you know, um, a lot of people who tune into inside commercial property is pretty connected in with the news.

Uh, we seem to be advancing pretty rapidly out of this, uh, c Ovid 19 crisis, uh, here in New South Wales. At least we’re seeing this in other states as well, accelerating into. Some sort of normal conditions, uh, by the time you tune into this, uh, you don’t need to wear masks anymore. There’s no restrictions anymore in venues.

You can dance and sing and go to discotheques, which no doubt you’re at, uh, Scott. All restrictions are largely gone. We’ve seen that in other states as well. Big thing here in New South Wales and the other premiers will follow suit, no doubt, is that they’re trying to get people back into the CBDs, which have been decimated over the last couple of years.

And we’re pretty much two years to the day from when restrictions started around COVID. So trying to get people back into the CBDs. At least the New South Wales Premier has made it pretty clear that if you work for the state government, you’re going to be going back to work and you’re going to be going back to work largely five days a week, which for many people is probably going to be a bit of a shock, but they’re encouraging the rest of the corporate sector to get people back in the office of Scott.

So that’s going to be something no doubt that will bode well for commercial property. We’ll have a chat about that today. Also, uh, interest rates, uh, there’s a whole bunch of noise around it. I think we should get into that and see how. That may impact commercial property moving forward. So these are the sort of major impacts on commercial property for 2022.

It’s got a bit of a theme for us for this particular podcast. Let’s kick off with interest rates. It’s a lot of fear mongering around it right now. One of the major banks, Commonwealth Bank has put the flag up saying expect interest rates by June 2022. That’s only sort of three or four months away. What do you reckon?

Yeah, look, they’re, um, yeah, August, June, they’re sort of predicting those interest rates to start kicking up around that. Interestingly, a lot of the three year fixed rates have already gone up about a percent. So that is driving a lot of the headlines in this space. And, um, yeah, look, I’ve done a bit of reading and all that on what all the different banks are saying.

So the CommBank is saying rates are going to be up around sort of 1 to 1. 25 by next year. Westpac. They’re saying up to 1. 75 percent increases by uh, end of 24. And they reckon that’ll be the peak of the cycle. A and Z sort of in the middle of that. So there’s all sorts of predictions, but we all know this was coming.

It’s nothing new to anyone that’s been around property for long. If you haven’t factored in a one or even a 2 percent interest rate rise in your numbers, then like you shouldn’t have invested in the first place. Like this is part of it, but the key is this is. But there is a lot of positivities around for property investors, at least why these interest rates are going up.

So it’s off of a higher inflation and a tightening labor market, essentially. They’re the two major factors. So wages are going up. It’s off record low unemployment rates where, you know, we’re seeing some predictions that their unemployment rates can fall, you know, pretty much to flat 3%. Like there’s, and this is happening in New Zealand as well.

So extremely tight labor markets, and that’s going to push wages up. And as wages go up, you know, there’s upward pressure on cost of living and everything around it. And the big thing that you’re going to see is increased rents. This is the next phase of the cycle, I think, in this market specifically, or both residential and commercial, but it’s probably going to be more.

I guess more sudden in some commercial markets as well, where a lot of the rents are associated to CPI increases. So, you know, there’s a lot of state based CPI predictions of around, you know, 5 percent for Perth, similar to Queensland. So imagine your rent just goes up 5%. Your yields are going to go up pretty quickly around it.

So, you know, there’s a lot of strength. Behind the market, which is the reason they’ve got to kind of push rates up to deal with that, essentially. Yeah, and there’s a big question mark for a lot of people around all these factors at the moment. Some of it’s concerning, some of them is positive for property investors, particularly the commercial space.

As you know, Scott, myself and you are working through finding a commercial property for me. So it’s something that I’m thinking about in the background. And to sort of follow on our last chat, we’ve moved on a fair bit. I’ve given you some instructions around how I want to proceed. So what we’ll do next time we get together, we’ll sort of update everyone on where we are on my commercial buying.

But you know, when you think of all the different moving factors right now and how it’s influencing and shaping commercial property, it was only a couple of days ago that Australia opened its borders up for tourists and other travelers. So largely the Fortress Australia has been locked up and Western Australia is still in that camp, but the rest of Australia not.

Fortress Australia. The walls have come down. We’ve welcomed international travelers back into Australia. And what you’re going to see from that and through that also is a rebound to migration. Uh, you talk about unemployment rates, uh, the lowest that have been in 50 years, how much further will they go?

Largely anyone in Australia that wants a job can have a job right now, and there’s still going to be some left over. So that’s good and bad. To your point around interest rates right now, a lot, and everyone’s hearing about it, a lot of it has been driven or the discussion around whether rates should be increased earlier or not.

Going back last year, the Reserve Bank said that they weren’t shift rates until 2024. Now, inflation has kicked in. A lot of it sort of led. Out of the U S but here in Australia, we’re seeing, uh, increasing in prices. A lot of that is structural and supply chain issues rather than underlying inflation. And that’s something that I know the reserve bank governor has put a big sort of question mark around.

In addition to that, and he made it pretty clear in his last minutes. So the reserve bank sort of catches up and gives their rate announcement at the start of every single first Tuesday of every single month. He’s not going to shift rates, he says, until he sees real wage growth, uh, sort of four or 5 percent at the moment, he’s not seeing that.

And therefore that warrants a delay in interest rate rises. Who knows, it’s a pretty complicated scenario right now, and it’s difficult to actually know who to listen to, because I’d rather listen to the Reserve Bank Governor, and they’re very conservative and measured in how they position stuff, however, the banks, and I’ll call it out, the banks Really want interest rates to go up because what happens if interest rates go up, Scott?

Well, it’s going to increase their margin potentially that it’s going to, uh, cull off some of the silly, I guess, fringe investing that’s going on. You know, it’s probably going to just normalize it, I think, to a degree. And that’s what I, as an investor who operates a business in investment, I’m craving a bit of that normalization because.

Yeah, look, it’s sometimes, as an investor as well, it’s disheartening seeing silly prices being paid because it means you’ve got to chase them to get into the market or, you know, it’s a higher price point. So, um, yeah, there’s plenty of, uh, logic to want the interest rates to go up if, if you actually think about it.

Yeah. Well, my point was that the banks generate more money from the Aussie interest rather than mortgage, uh, the Aussie mortgage holder. They’re invested in rates going up. They’re going to start arguing that money’s getting more expensive overseas. Therefore, they need to raise rates. We’ve seen all this, you know, we’ve been in this market for a number of different cycles.

We’ve seen a lot before whether or not you’re going to get rate hikes in August. I know, and you’ll know this Scott and everyone who has been through. Getting a mortgage recently that the banks are assessing you way above the current interest rate anyway. So they’re structurally put in this sort of 1. 5, 2 percent buffer to make sure that you can repay your debt.

So that’s a good thing for a lot of investors, no doubt, but it will slow markets down. Yeah, definitely. And, um, I think it already has to a degree. You’ve probably seen it in a lot of the residential markets stock has increased. So it’s kind of a good excuse for. Those on the fence sellers to finally go, or maybe now is the time to sell.

No, they were quite reluctant last year. So a bit of interest rate talk is going to increase supply to a degree. And then, uh, you know, the one out of 10 investors that are very nervous, well, you know, that’ll actually mean they leave the market. So it’s going to kill a slight amount of demand, but I think this is the key point.

Ultimately, there is a lot of money out there. People have been saving incredibly large amounts as a ratio of their incomes more than they ever have, in fact, over the last two years. So ultimately there are investors there that are going to keep buying. There’s homeowners that are going to keep buying.

In fact, there’s been a bit of a bounce back in 2022 with owner occupiers entering the market again. So this idea that it’s going to have a, like a correction, a large one is. I think it’s completely false. There’s probably going to be further growth in 2022 and there might be a bit of a slowdown in 2023, which is indicated by most banks sort of predicting somewhere between five and 10 percent growth this year for the capital cities followed by.

Around 6 percent seems to be the number they average out of fall in 2023. This is house prices. So overall, the market is still growing over the next two years. Plus rents are growing in that time significantly as well. So if you sort of break down those numbers and You’re not really going to be getting a good deal in two years time, either.

It’s going to be higher and the rents will be higher as well by then. It’s just not growing at this crazy rate we’ve seen, which that’s the normalization that I’ve been craving. No one wants 20 percent growth rates every year. That’s great. Sounds sustainable, right? Exactly. Absolutely. So are the banks now forecasting growth in 2023?

Because a lot of them beforehand were saying, Oh, no, property’s got to drop in value over that sort of 2023 period. I’ve seen some, uh, reports this morning, but yeah, basically it was, um, capital city average because Brisbane’s going to like, they’re predicting like 10 percent growth in that market plus this year and Sydney.

you know, almost flat. So there’s Perth going off its head. So there’s, um, basically it was an average figure. Okay. And you know, Southeast Queensland’s where they’re expecting a lot of growth moving forward, but this is, you know, again, where do you start? Where do you finish in terms of making investment decisions on what’s going on with interest rates?

What’s going on with access to money, liquidity of money, you know, it’s going to be harder to get a mortgage moving forward. It all comes down to how prudent the borrower you are. And if you can put together a good proposition to a bank while they should lend you money. That will lend you money because banks like to lend money, particularly if interest rates are higher, because they put more money into their back pocket.

So this is the interest rate dilemma at the moment. There is a fair bit. I would say it’s a fair bit of fear mongering around it right now. And there’s certain parts of the media where you see quite a lot, but I know you’re a big fan of the Daily Mail because you’re in it every other week, Scott, with your shirt off, um, somewhere or other in a, I don’t know, some beach side suburb, but they like you, the Daily Mirror, sorry, the Daily Mail.

Oh, you’re thinking of someone else. But you see the fear mongering on more tabloid type news outlets like that, where, and these are the same, these exactly the same news outlets. If you go back two years ago, we’re telling you that you’re about to become the poorest person in Australia because property is going to drop by 40%.

You know, a year on from that, they’re telling you it’s the biggest boom in property. You’re an idiot if you’re not investing in property. And now they’re telling you that interest rate is going to rocket and it’s going to cost you so much more to hold your mortgages. So, you know, just be careful what you listen to.

But we’re in an environment right now with a big question mark around interest rates. And as long as you’ve got this factored in and you. know how to navigate and operate inside a more normalized market, you probably do quite well. Yeah. And, um, this is where it is good to break down things. So let’s put some actual numbers on what the result is of the worst case scenario, which they’re predicting a 1.

75 percent increase in the rates over the next two years. So if you’ve got a million dollar commercial property, getting a 6 percent return, you’re going to be clearing 41, 000. Dollars that’s after mortgage at the current interest rate. So we’re working off interest rates on average for commercial investors in the high twos.

So call that 2. 9. We’re seeing many clients as of this morning, as of yesterday, still getting full doc loans in the very low twos. And I’m talking 2. 1 to 2. 4. These are the rates still out there right now. Obviously, if you do lease stock, it’s going to be a little bit higher. If it’s in a super fund, it’ll be a little bit higher.

So we’re just talking what the impact of. This increase is going to be to your net cashflow. So if you’re getting that 41 grand currently, and then all of a sudden that interest rates go up 1. 75%, your cashflow drops from 41, 000 to 28, 850. So you can see. It’s still massively positively geared and that’s assuming there’s not like that’s going to take two years, they reckon to get to that number.

So by then you probably had six, maybe seven, maybe even 8 percent of rental growth in that time. Like assuming it goes up by 3. 5 percent each year. So your cashflow was almost in the same position. So this is the important thing, break down the headlines, because if you’re looking, Oh my God, this interest rate is going to go up 1.

75%. The world’s over from my investing. Look at the numbers. It’s awfully boring. It is literally barely going to change your life. And then, like I said, by the time that interest rate comes up, uh, sorry, the, the rental growth, you’re in the market. You probably had further capital growth in that time as well.

So for commercial investors, I don’t think it’ll make a big impact. That’s off a 70 percent debt ratio as well. Now where the interest rate will hurt you more is if you’ve done a 95 percent lend into a negatively geared one bedroom apartment. Of course, that’s where your leverage crew is going to get punished.

And, um, so I’m not speaking on behalf of that side of the market talking about, uh, you know, what we deal with day to day, which is the commercial side. Yeah. And it’s well observed. And I think the thing to point out there, Scott, is to warrant those interest rate hikes, you should be able to generate more income from your commercial property, which therefore should neutralize.

Any increase in the mortgage rates. The point being that you got to make sure that the lease that you have connected with your commercial property facilitates increases to rent. If you don’t have that inside of your lease right now, is there anything you can do about it? Yeah. And that’s a great point, Phil, because even two years ago, if there was a CPI increase in a lease, it was frowned upon.

It’d be like, Oh, there’s no 3 percent fixed increase. That’s obviously not, uh, that’s not ideal. It’s done the flip side. Now you want that CPI increase in your lease because it might mean your rent goes up 4 percent this year, or, uh, yeah, it’s definitely going to be more than 3 percent put it that way.

And, um, I think it’s good to have a lease. If you are setting a lease out to your listeners that are going, you want. a fixed increase or CPI, the greater off. That’s the best case scenario. So that means if inflation drops down significantly in two years time, you still got your, you know, minimum 3 percent increase, but if it goes up to say four or five, you’re going to get the benefits of that.

So it’s a greater of increase, which is key to put into the leases and maybe say only 25 percent of the leases have it. Now all the rest have one or the other. But it’s important in these stranger times where you’re going to see more extremes in numbers. And, uh, yeah, that’s what we actively tell our investors to, I guess, request when they’re trying to set up a lease now.

Yeah. These are nuances around leases. And if you’re not too comfortable with them, make sure you get someone involved, a good sort of commercial property lawyer who can work these things for you. There’s a lot of, um, you know, a lot of this stuff you can just take off the shelf and just tailor it with good leases that have stood the test of time.

It’s a big question for me. Scott is putting interest rates aside at the moment and how that’s going to um, shape how you might be investing in property right now. This whole return to work scenario, so as I mentioned beforehand, the government’s going to want to get people back into CBDs. The New South Wales government, the Premier here has said three days a week isn’t enough.

We need people back in, in these CBDs five days a week to make it. Sustainable for SMEs, small to medium businesses, restaurants, bars, et cetera, inside of these CBDs to be able to operate effectively. I think that’s going to be a hard stretch. I think back to the latter part of 2020, as we sort of bounced back from that first lockdown from the COVID 19 pandemic, I was like, yeah, CBDs will bounce back.

I’ve really changed my sort of paradigm towards, I think the CBDs have functionally and structurally have changed forever now. And white collar workers, professional workers, knowledge workers, if you want to call on that, who do their jobs by a computer and chat functions and whatever technology they use, I can’t see them back in the office, uh, back into the CBDs five days a week.

Look, I agree with you, especially off the current population. I think the one thing that will challenge that is, is immigration, overseas migration rather. And, um, we’re going to see huge amounts of new people come to Australia and they’re probably going to get pushed towards the CVDs and whatnot by employers.

I know places like the Gold Coast have had seen really good net absorption rates for office space, because a lot of people are moving to places like the Gold Coast and working from there. And so that those office markets have done very well already, we’re seeing vacancy rates probably drop 2%, you know, from numbers of say 12 percent to 10 percent vacancy rates.

So different office markets will perform differently, but look, I do agree with you, Sydney and Melbourne are enormous office markets and they’re still building office space as well. So. It begs the question, how are we going to fill them all up? And unless we just really go heavy on the immigration, it’s going to leave some gaps there.

And will it go back to normal? I think it’ll take some time because there is a reluctance for, for many people to it, to want to go back to that lifestyle. Well, they’re talking, uh, you know, a lot of past last year, everyone was talking about the great resignation, which was more of an American concept when they’re Australian, um, IE, everyone’s going to resign from their jobs because they’re not happy and they’re going to go find something that best suits them in Australia.

What they’re talking about now is the great reshuffle as in, you know, thinking about it as playing deck people, moving jobs because everyone has wants a job right now in Australia can pretty much. My view of this is that if employers big or small are able to offer a working environment, which is conducive to getting the best out of your people, but also your people can get the best out of their work.

I think that’s probably the framework for how most organizations are moving forward five days a week in the office for most knowledge workers. I think it’s just not going to go back to it ever. And if you do mandate that as an employer, I think you’re going to struggle to keep. Your best and brightest.

And that’s a big issue for a lot of organizations moving forward. So, you know, office space in Sydney and Melbourne, uh, probably on the nose for quite some time still, however, you know, your industrial markets are probably still moving along quite nicely because they’re probably the biggest recipient of the changing workplace for people.

Yeah, correct. And, um, and also those sort of neighborhood shopping retail strips, which all of a sudden have. Double the amount of workers in those areas now. So, you know, I know my, my, we’ve spoken about it many times, the local cafe near your house, they’ve probably never done better trade. They’re probably finding it hard to get staff though.

And then that’s another challenge. So, you know, these places, two hours, either side of a major capital city are doing very well. So lifestyle destinations have already proven. extremely popular through COVID around the world. In fact, it’s not just an Australian thing. It’s, it’s everywhere. Um, like places in Spain and Portugal and, uh, you know, small regional towns in the U S that are lifestyle destinations, they’ve all grown massively and they’ve become unaffordable for the locals in many cases, because office workers are buying up the good properties in these areas.

Pumping the prices and then obviously staying there, you know, a lot of the time. So yeah, it’s, it’s been a massive movement of people COVID and I don’t see it sort of recoiling back to the original state anytime soon. No. And as a commercial investor soon to be commercially investor, I think it’s about understanding these dynamics and looking to capitalize on as much as possible.

And in my view, And commercial property and resi property work in unison in many ways because your commercial, your commercial assets typically benefit from growth in resi property and resi properties determine where people choose to live. Now, my view, and I’ve sort of spoken a lot about it on this podcast and other ones is that those regional lifestyle locations within striking distance of your big CBDs will be the ones that really.

grow and drive forward over the years ahead and into the future. I think it’s just got to be, that’s the way it is moving forward. You only need to go back to the 1800s and the fancy people, Scott, those with plenty of dough, they didn’t live in the CBDs. They lived out in the city fringes where they had nice houses and land and, you know, good lifestyles.

And they’d only come to the city for work purposes. The cities were essentially. Where the slums were, and you only need to go back to, you know, your Surry Hills or your Paddingtons and those sort of areas were working class slum type environments for many, many years. So I think that’s going to be the norm moving forward.

So if you think of a striking distance from Sydney now, easy access by road, rail, et cetera. Your Blue Mountains, your Central Coast and your sort of Wollongong precincts, I think, are going to become very, very popular, even out sort of further towards your Kiamas and Berries, and we’re seeing this now, and up in the Central Coast, like your Waiyongs, etc.

They’re big centres, regional centres, and let’s use Waiyong, for example, you know, Waiyong is bigger than Darwin, right? Uh, there’s more people live in Waiyong than Darwin, and it has a pretty Sort of significant commercial precinct right now, but that must grow over the years ahead, purely because you’ve got more people living in those areas.

Is that a fair sort of parallel to draw? Yeah, look, definitely. And come to think about it, we haven’t really done many CBD purchases, like if I’m thinking back and we’re not really biased because we take every deal on its merit and the tenant and the reletability. And. Just by nature of weighing up risks that yeah, we’re buying a lot of properties in these types of locations you mentioned, because they represent somewhat of a better yield, but also just stability of income.

And these tenants have performed very well in many cases through the entire COVID period. And, uh, yeah, I think there’s great opportunity and if you can still get a good yield in this market and hedge your bets against inflation through the rent growth, it’s, there’s very good opportunity. And, um, I think there’s a bit of common sense that applies, like if you’re just buying a floor plate in an office tower in a CBD.

It’s not a unique property. It’s already priced as high as the sky and the yield’s probably pretty low. So where’s the upside in that type of deal for an investor, especially a mom and dad investor who can’t, you know, buy the whole thing. They’re just buying a section of it. That’s sort of where I think you can get it wrong with commercial property, but yeah, that like those areas you mentioned, we’re seeing quite rapid growth still because people are now more comfortable with them than they ever had been, not just because more people live in these areas, but.

Just because, uh, it passes the common sense test moving forward. Yeah. And this is how you got to be connected in with commercial property moving forward. Actually understand, appreciate these, these shifting dynamics. And if you go into investing in commercial with the blinkers on saying, I’m only going to invest in the large CBDs, you know, or state capitals, you probably got to miss the real beat moving forward.

So how do you work out, you know, sort of conclude with this question, Scott, how do you work out? If you’re going to sort of aim for these more quasi metropolitan areas, which are in striking distance of other large capitals, but outside of the capitals, how do you feel to what constitutes a good investment in that regards?

What would you be looking at? Is it industrial stuff? Is it warehouse type stuff? Is it showroom type stuff? What’s good right now? And what do you think will be good for the next sort of decade? So high level, I always just, just because I’m talking to banks every day of the week, we like knowing what banks like and what they don’t like.

So if they’re ruling out an asset class, it’s going to mean less people can afford these types of properties because they’ve got to put more cash down on them. So if you go to regional, you’ll see, you know, less than 5, 000 people in town, banks are going to start pulling the rug from under you. So start with.

where the banks will allow you to invest well, you know, leverage properly. And there’s obviously exceptions to that. If you can get a 15 percent yield for, you know, a really well performing pub in a small town, that’s probably still a, you know, a good deal, but, um, but yeah, so start with where the banks are at.

And then second is I always like to know what the leasing market’s doing in there. So if you go down to these small towns, uh, and there’s every fifth shop vacant, Forget it. You know, you’re just, you’re just delaying the inevitable risk that one day your tenant will go and then you’re going to have to deal with that, uh, you know, that competition for other leasing markets.

So you need a good leasing market day one. And, um, I’m lucky enough with my job because we’re nonstop buying. So we, we kind of have a live feed on where. The tenants are knocking on the doors harder, whether rent growth’s happening. So understanding what the tenants are doing, you know, before you even buy is an important part.

And then once you find the right asset class and you’re comfortable with the rental side of things from a re leasing, you’ve got an individual asset. First thing you want to do is find out how that tenant went through COVID. I want to see tenant ledgers. I want to see every single payment they’ve made or missed in the last two, three years, if you can.

If they’ve had one month of, uh, you know, back in March 2020 when free rent, whatever, that’s fine. You know, if they’ve had six months of rent relief and they still haven’t paid half of it back, it’s massive red flag. So, you know, to progress with that deal, we’d need to negotiate a rental guarantee from an owner.

We’d need something in return because we know that tenants on the, you know, they’re a risky tenant essentially. So if you pass that side of the predictability that’s a good part. And then Obviously, uh, I think you’ve got a good asset if the yield stacks up. So the rest is more of a valuation method. Are you paying the right, right yield versus others in the market?

Because we know that rent’s going to get paid because we’ve already done the due diligence on that. So how are we going to get A better deal, and that might be a longer lease, or it doesn’t need to be a super high, uh, yielding asset. It’s more about is this property easy tole? Can we get upside in the deal?

Is there a, is there a very long lease that we know valuers are gonna like, that the bank will like, that you’ll like from a security point of view? So that’s how I weigh up all the, all the deals. It’s sort of, it’s a step-by-step process. So, you know, you don’t just go, all right, I’m gonna target childcares.

End of story. There’s, it’s about working through the steps I just mentioned. And, um, and if you do that, you’re going to have predictability of income. If your tenant lost, you know, bailed on you, you’re going to have another one pretty quickly. And if you pay the right price day one, then, you know, there’s not too much risk.

If you ever need to offload it quickly as well, for whatever reason. It sounds, um, it’s, uh, it’s just confusing as ever commercial property Scott and I know that’s the reason why people are probably knocking on your door for, for help. You guys got capacity at the moment to take on new clients, how you sort of fit?

Yeah. So update on the stock front. So it is better than last year. So we found last year, we were really like, we had to close our doors essentially for three months last year, which, you know, as a business owner, that doesn’t, you’re not proud of that. You don’t want that, but we have to maintain quality above all else.

We know what’s in the market. There’s no point just trying to buy things for the sake of it. Cause you go nowhere in a hurry if you do that from a business point of view. But this year we’re seeing a lot of the owners that delayed Listing last year have listed this year. So stock is probably, Oh, for us, it’s, I’d say probably almost double what it was.

So it is, but that’s still tight rent. Like we would love five times the amount, but it is better. There’s, there’s just a lack of sub million dollar deals out there, but, um, they, they pop up here or there, and then, you know, we’re very, uh, thorough and grabbing every good one we can and the poor ones we let, you know, go to the market or whatever.

So price point really will dictate. What stock you’ll say, but overall it is getting easier. I don’t know how long this stock boost will last for because a lot of the owners, I know we’re just, you know, delaying selling from last year. So it might tighten up again as you get towards winter, but no doubt the interest rate talk is that it’s probably pushed a few owners over the edge to go, you know what, maybe I’ll, because this agent’s been bugging me for two years to sell and I’ve had some good growth.

Maybe I’ll sell. So there’s no doubt many of those conversations happening. Um, but stock is a little bit better, still tight, but, um, you know, I’m quite happy with how it’s going this year so far. Okay. We’ll get in touch with the guys. Uh, just Google Rethink Investing and next month I’ll have an update on where I am with my, uh, purchasing through Rethink Investing.

I look forward to that. Uh, Uh, hopefully something meaty for our listeners to know where I’m at with that, Scott. Uh, thanks for your time today, mate. Always enjoy the discussion. Uh, thanks, Phil. Appreciate your time. Nice one. That’s uh, Inside Commercial Property. I’m Phil Tarrant and um, my co host Scott O’Neill.

We’ll see you again next time. Until then, bye bye.