How to make the leap into commercial property

Mr O’Neill told investors that getting started in commercial property is a lot more than just being brave and taking a leap of faith.

“It’s probably just like residential, you need to research the fundamentals, look at the relatability and factor in those types of big risks that might never eventuate, but just plan for them. That’s what it takes. It just takes a lot more planning,” Mr O’Neill said.

He also pointed out why a lot of investors might avoid the asset class compared with residential investment.

“It is more risky. So, one of the reasons most people start on a cheap 300k type residential property is because there’s not too much that can go wrong unless termites go through the property, or if you lose your tenant and trash it, you’ve hopefully got insurance, so there’s a lot of safety nets,” Mr O’Neill said.

“But if you get commercial wrong and you buy the worst property on the worst street, you’re going to suffer.”

However, the investor pointed to the rewards for investors who buy the right property in the right location for the right price.

“It is harder, but that’s why the payoff is greater, because there’s less competition in this space due to that reason,” Mr O’Neill said.

A three-point plan to getting started:

Investors looking to diversify away from purely residential property or get started in the commercial space have been advised to look at three points prior to starting their investment journey.

1. Attitude

The commercial real estate expert pointed out that investors need to treat their investment into commercial assets like a business instead of just buying for the sake of buying.

“The attitude must be, you’re buying it for a reason. So, the reason most people come to commercial is to improve their cash flow,” Mr O’Neill said.

2. Education

He also points to the fact that to be successful in commercial real estate, investors need to understand the asset class.

“Education is really about things like what’s the rental market like in that area? What’s the current tenants’ businesses looking like? Have they got good history?” Mr O’Neill said.

“Educate yourself around why are the owners selling? Is there any, I guess, relationship to the tenant and the owner, which sometimes can be hard to find, and that’s … You’ve just got to find all these little things. It’s just, it’s time, and you’ve just got to connect all the dots as quickly as possible when you put an offer on.”

3. Deposit and finance 

Finally, Mr O’Neill explained the importance of having a deposit ready and the finances sorted before purchasing any commercial property.

“So, deposit and finance, sort of hand in hand. So a good commercial mortgage broker is key,” Mr O’Neill pointed out.

“The residential broker, out of a simplicity, will tell their clients just to probably look at another residential loan because that’s their core business.”

“But if you’ve got a broker that is very experienced in both, I think you’re going to get very good advice there, and a mortgage broker can be someone on your team that will actually help with the attitude part.” 

“You’re all on the same team. If you’re all moving in the same direction, they’re going to be looking after you on the finance, and when you find the right asset, you need them onboard and move nice and quickly,” Mr O’Neill concluded.