Improving your commercial portfolio

Commercial property is one of Scott O’Neill’s key investment passions. As head of Rethink Investing, he’s helped over 1,500 Australians build wealth through commercial property. But O’Neill is also keenly aware that, as with any other property type, you need to actively manage your commercial property once it’s been added to your portfolio. Adjustments can be made to leverage it more effectively, and O’Neill is particularly keen to dispel the urban myth that commercial properties don’t grow in value.

“Commercial properties can have significant growth potential,” says O’Neill. 

“What’s important is ensuring that you have the right information available before going through the purchase process.”

Commercial properties often involve complex lease arrangements, so it’s essential to ensure that sellers disclose the correct information before the sale proceeds. You need to find out what sort of lease terms have been laid out and whether any incentives have been added, O’Neill explains.

“If you’re going alone, you’re going to miss some of the traps,” he says. “But when you have all the facts at hand, you’re also in a much more powerful situation for negotiating future leases.”

O’Neill points to one of his early commercial properties as an example of this principle in action. Though a single property, it had three separate titles, with two held by a convenience store and the other by a local fish and chip shop. Both were long-term clients – and perhaps most importantly were businesses unlikely to be affected by outside factors such as e-commerce. While the property offered positive cash flow from the beginning, O’Neill recognised that there were a number of opportunities for improving it – and accordingly his return on investment.

“The most obvious opportunity was increasing the rent,” says O’Neill. “So, over time, I renegotiated the lease for a better deal, an increase above the CPI growth that was already built into the lease.”

“Working in consultation with your property manager, you can look for ways to ... maximise your capital and returns”

However, O’Neill stresses that growing your property’s value is not about gouging tenants. 

“You can’t just increase the rent arbitrarily,” he says. “You need to be offering a real benefit to the tenant. So we worked across a number of fronts with tenant consultation, including renovations that modernised the property, and modifying the lease to ensure mutually beneficial conditions.”

There are other options for increasing returns, O’Neill points out. Subdividing to add more tenants can be one option, particularly if the existing tenants feel they’re not making effective use of their space. Additionally, the exterior of a building can often present opportunities for profit via rental of advertising space.

“Working in consultation with your property manager, you can always look for ways to improve the property and maximise your capital and returns,” says O’Neill. 

“Dollar for dollar, your money can go further – it’s just important to make sure you have all the correct information at hand and can make informed, mutually beneficial decisions.”

Scott O’Neill is the founder and director of Rethink Investing, a BRW Fast 100 property investing company specialising in finding rare positively geared properties all around Australia (commercial and residential).

Scott is an experienced and active investor who was able to retire from his day job at the age of 28. With a current portfolio of 32 properties worth $20m, he is one of the most successful young property investors in Australia. O’Neill has a passion for all aspects of property, especially helping others find great deals.