Bucknells’ Guide To Commercial Property Investment
Tim O’Dwyer M.A., LL.B
by Tim O’Dwyer M.A., LL.B
Solicitor
Consumer Advocate
Nigel Bucknell was originally a scientist. His wife Janet was a mathematician. Both are now successful commercial property investors, and clients of mine.
Their first investment was a small shopping centre. They currently have industrial, shopping centre, motel, caravan park and sporting centre investments.
The Bucknells prefer commercial because it is priced on yield, future rental growth, development potential and a level of security. An intending commercial property investor should, they believe, first determine the appropriate purchasing entity -company, trust, partnership or whatever – with a lawyer and an accountant.
First-time investors, they suggest, should work on the premise that their potential profit (or loss) is made at the point of purchase. Do “thorough research” into your target property. Ask the hard questions. Why is the owner selling? Is the zoning correct? What about flooding? What is the tenancy history? Are the tenants happy? Is the neighbourhood improving? Is there any traffic congestion? Is there a mountain of deferred maintenance?
The Bucknells view industrial real estate as moderately high risk because a single tenant is more likely to leave if there is little tenant-owned infrastructure. Industrial tenants, in their experience, either go broke and leave, or do well and leave. Industrial property, to attract a larger more stable tenant, will be priced from $2 million with a yield of around 8%, and should be within 20k of a large city with road access to rail, container terminals and an airport.
“Small shopping centres are a management challenge”, say the Bucknells, ” but can work if you have diplomatic, business and handyman skills”. Be are prepared to assist your tenants with everything from marketing and accounting to counselling. Such centres may still be attractive because of multiple tenancies and sometimes significant tenant-owned fixtures and fittings. The Bucknells believe retail remains under stress from increased trading hours and new major players entering the market. Strip shops with parallel street parking are “dead in the water”. The Bucknells conclude:
“Determine the residential catchment that can easily access the centre you wish to purchase. Sit for weeks at different times counting cars and walk-ins. Check if all shops get their share of customers. Estimate if they spend enough for tenants to pay the rent and still make a living. No time to do this? Forget buying a small shopping centre.”
On office blocks they say:
“These have a high risk of remaining vacant for long periods. Bank buildings and the like sold by owner-occupiers with a five year low-yield lease are a recipe for disaster – when the tenant leaves. New investors should avoid office space.”
Caravan parks, the Bucknells warn, require continued management involvement. Interested in buying one as an owner-operator? Heed this advice: “The return is likely to be low and the work guaranteed to be high.”
Motels and hotels are specialist areas, say the Bucknells, but with high tenant security because of the tenant’s investment in goodwill, fixtures and fittings. Good properties are tightly held, so be suspicious at anything offered for sale. Profitability often depends on position and the level of competition from other motels/hotels.
The Bucknells offer this general advice to commercial new chums:
“Your investment will be successful and rewarding the more work you put into it. We all want something for nothing, but in the real world, this does not happen.”
Nigel and Janet have not sold too much property over the years, so prefer to offer no comments on selling commercial properties. The following are my views on the subject.
Many residential sellers are now selling privately. Why pay agents’ commission, they ask themselves.
Commercial sellers might ask the same question. With help from accountants, lawyers and a marketing company, you might achieve a better result, more cheaply and safely, than with an agent.
Whether you use an agent or not, astute buyers will undertake due diligence enquiries before and after entering into a contract. Do your buyers a favour, and give your property an edge. Disclose all relevant information up front. Obvious essentials, subject to your solicitor’s vetting, are building plans, zoning and other approvals, leasing details and why you are selling.
The basic rule of property sales is “tell the truth attractively”. The law, in fact, requires honest answers to buyers’ inquiries. The law also states that you, and your agents, must not mislead, deceive, act unconscionably or tell lies. Be aware some unhappy buyers sometime sue sellers and obtain judgements setting aside contracts and awarding damages. So, do unto buyers as you would have sellers do unto you.
Finally make sure, before going down the sales path, that you are properly advised on the financial, taxation and legal consequences of selling. Don’t sign anything your solicitor has not checked out first.
Needless to say, the Bucknells have not sold too much property over the years, so here is their lawyer’s advice in that regard:
O’Dwyer’s Guide to Commercial Property Selling
Many residential sellers are now selling privately. Why pay agents’ commission, they ask themselves?
Commercial sellers might ask the same question. With help from accountants, lawyers and a marketing company, you might achieve a better result, more cheaply and safely, than with an agent.
Whether you use an agent or not, astute buyers from you will undertake due diligence enquiries before and after entering into a contract. Do your buyers a favour, and give your property an edge. Disclose all relevant information up front. Obvious essentials in this regard, subject to your solicitor’s vetting, are building plans, zoning and other approvals, leasing details and why you are selling.
The basic rule of property sales is “tell the truth attractively”. The law, in fact, requires honest answers to buyers’ inquiries. The law also states that you, and your agents, must not mislead, deceive, act unconscionably or tell lies. Be aware some unhappy buyers sometime sue sellers and obtain judgements setting aside contracts and awarding damages. So, do unto buyers as you would have sellers do unto you.
Finally make sure, before going down the sales path, that you are properly advised on the financial, taxation and legal consequences of selling. Don’t sign anything your solicitor has not checked out first.
To comment on this article, please return to the Australian Real Estate Blog.
Visit Lawyers Conveyancing for more information on property law and conveyancing procedures
See also: auctions| buying| selling| Section 32 vendor Statements | auction strategies | conveyancer
