Long-time investor Phillip King encountered the negative gearing setback that would end up crippling his residential investment goals – so, he turned to commercial property.
Now boasting a multi-million dollar portfolio with substantial equity, he shares his top tips for those keen to break into non-residential investing:
1. Search for shops in the middle of an ant nest. Commercial ventures thrive where there are customers to be had. “You need lots of people surrounding the shop to ensure the tenant’s business is busy and well-supported,” Phillip says.
2. Choose in-demand service businesses. Phillip’s favourite tenants are hairdressers, cafés, bottle shops, restaurants and medical centres, which are generally supported by either a loyal consumer base or cater to a neighbourhood’s basic needs.
3. Ensure all outgoings/expenses are accounted for. “A shop for sale should detail all the outgoing expenses in the sellers Information Memorandum. This ensures the net rent figure stated is inclusive of all outgoings,” Phillip advises.
4. Charge sustainable for that business type: To avoid having your tenant request a rent reduction or default on the lease, research the rents paid for neighbouring shops to ensure the current rent is sustainable.
5. Prioritise newly built properties over older ones. “The newer building will have less maintenance, and most importantly, it will provide a better depreciation schedule for taxation benefits. It will also have better capital growth potential!”
For the full story of how Phillip built his substantial wealth using commercial property, read the complete feature article in the May 2019 edition of Your Investment Property magazine.
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