Property Hub - Investment Insights & Inspiration - Realty Talk: Commercial Risks + Renovation Strategies + More Money More Often!

Episode Date: July 23, 2022

As the covid stimulated property honeymoon comes to a close, property aficionados are left wondering what are the risks, what do I need to do differently and how can we improve our cash flow? so this week’s show gives you some timely answers. We kick things off with Steve Palise from Palise Property who joins us again to reveal common commercial property risks. Belinda Smith from Renovate & Real Estate is also back, to reveal her best renovation strategy for 2022. And our host Bushy Martin from Know How Property Finance closes the show by opening investors' eyes to a technique that will substantially improve their cash flow.  RealtyTalk is your trusted voice in property investment and Australia’s most popular online property show.  RealtyTalk is brought to you by Realty, Australia’s leading search and social property distribution platform that helps investors like you beat the crowd, giving you the earliest access to property opportunities, listings, and insights. Check out Realty. RealtyTalk is hosted by top property investment expert, author, and founder of KnowHow Property, Bushy Martin. Find out how Bushy’s KnowHow team helps investors unlock freedom with finance and property here, and check out Bushy’s podcast Get Invested.  RealtyTalk is supported by BMT, a company that helps property investors save thousands of dollars each year by maximizing tax deductions from investment properties. Find out more. See omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by realty.com.au, connecting buyers, sellers and agents differently. Hi, and welcome to Realty Talk, Australia's longest running and most popular property show. I'm Bushy Martin from KnowHow Property Finance, and as the COVID-stimulated property honeymoon comes to a close, property aficionados are left wondering, what are the risks? What do I need to do differently? And how can we improve our cash flow? So this week's show gives you some

very timely answers. Kicking things off, Steve Polisi from Police Property Buyers Agents joins us again to reveal common commercial property risks, given the increased interest in this asset class in recent times. And as set and forget buy and hold properties are coming off the boil, property values start to plateau in many areas around the country, growth investors will need to manufacture equity in the short term. And to help you with this, Belinda Smith from the Rare Consultancy joins us again to reveal her best renovation strategies for current conditions. And finally, as living costs increase and interest rates rise, affordability for investors is being severely squeezed. So I grab your attention by revealing a long established but little known

technique to substantially improve your cash flow. So keep an eye out for this because it could make a massive difference. And before we get into it, make sure you stay on top of all of the leading property opportunities by jumping on channels.realty.com.au forward slash Realty Talk and hit the subscribe now button so that you don't miss another episode by getting every show in your inbox every week. And for taking the time, I'll even throw in a free copy of my award-winning book, Get Invested. We've got a lot of great insights to share, so let's get underway.

Successful property investment is a game of finance. Do you have the right team and the right game plan? Realty Talk is brought to you by KnowHow Property. More than mortgage brokers, Bushy Martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs, tax, risk and stress while increasing your capacity for growth. KnowHow has helped over 1,900 homeowners and investors secure more than $800 million in property wealth. So get set to live more, work less and live your legacy. Want to know how to invest in your freedom? Visit knowhowproperty.com.au

Hi and welcome. Now in recent times there's been a sizable shift in interest in commercial property given the rental yield compression being experienced with residential property as values have risen sharply over the last couple of years. But simply treating commercial property like residential property is a big mistake as the rewards and the risks can be very different. So to educate you and open your eyes to the risks associated with commercial property,

we're joined again by RealtyTalk regular, Steve Polisi, who's a successful commercial property investor, come multiple author and national commercial buyers agents with his company, Polisi Property. So welcome back to the show, Steve. Well, she thanks for having me back on, mate. Appreciate it. Always good to have you on, mate.

Now to sort of kick things off on the subject of risk, let's start by having a look at whether commercial is riskier than residential as you see it yeah so this this is always a hard question to answer because commercial can vary so much like you've got office space you've got industrial you've got retail they all have different risks associated with them and then the locations much like residential a mining town residential property has completely different risk profile to a capital city so each one has its own different risk profile. The thing with commercial is the main risk is vacancy. So if the property goes vacant, it's not vacant for one or two weeks, it's vacant for six months, 12 months, two years,

five years. So getting that right is the most important thing. So something like an office building that has a different risk profile to an industrial because they can build a 20 story skyscraper right next to you and have an oversupply very easily, whereas something like an industrial, you can't really have that unless you're buying in a greenfield where they've got lots of land to be released, that mitigates that. With retail, it's got more to do with foot traffic and road traffic and demand. If they build a shopping center, Westfield's next to you, that can change the foot traffic directly. So you assess each on their own merits, but the risk of vacancy is the main one you need to worry about. Most of the time you're getting good enough cashflow that interest

rates aren't as the main risk like it is with residential. If interest rates go up by a percent or two with commercial, yep, it drops your passive income from 30,000 to 20,000. Residential going from neutrally geared to negatively geared 10 grand a year, you'll feel that difference. So that's the main risk you need to be aware of. There's all that other stuff you need to check out, but I'd focus on that when you're starting out. Yeah, okay. Well, let's dig into that a bit deeper in terms of the other risks that are associated with commercial, if you can, please, mate. Yep. So I sort of mentioned a few there with the future developments, but the commercial, because there are a lot more moving parts one of the risk is obviously the tenant the tenant

leaving so you need to be able to assess the tenant their longevity uh also the type of tenant that's going to occupy your premises so this is probably the difference residential you buy a house you know it's going to be a house in 20 years time in 20 years time is there still a need for that type of commercial asset and some examples might be like a petrol station our petrol station is going to be around in 20 30 years probably not so that's going to be assessed differently um another one i commonly see at the moment is banks are up for sale and that's because when's the last time you've walked into a bank bushy so so you're not you're not just forecasting how people are going to live you're forecasting how business is going to move forward so you need

to look at that so if you are going to invest try to get something versatile so something that's got multiple uses different locations so you can weather the long-term storm um so that's one looking at foot traffic and road traffic is a big one like i mentioned before you got to look at things like where they're diverting roads to if you buy a retail in a regional town and they're doing a bypass of that city again that could really hurt whereas it might not hurt the residential as much but it'll definitely hurt the retail and the industrial sector there so there's another one and then the other one is just looking at everything together the contract the lease who the tenant is had the terms of the lease foot traffic road traffic comparable sales

comparable rentals even doing vacancy occupancy studies and things like that are a lot more work so doing all the work so that's probably a risk is not knowing how to do the work which i mentioned on the last episode yeah spot on well let's look at the one of the important things that investors looking at this space need to take into consideration that's how do you actually assess the risk with commercial then steve yep so just just with this perspective i probably spend about 40 to 60 hours on each property assessing risk. So like with my clients, I'll give them a 60 page due diligence report. So I'll go through a few just say, listen, so obviously the first one, like residential contract review, you make sure the contract's in line. Then you'll look at the

lease. So you have to look at lease terms and things like that on, you've got a bond on a residential lease. This you'll have a bond, but it'll be in the form of a bank guarantee or a personal guarantee. Then you've got your standard bond, rental bond as well. Then you have to look the terms and conditions, the make good clauses, which is how they the condition they leave it when they leave rental increases, because they're actually fixed or variable depending on the contract. So that will take kind of a few hours just in this line. Then you look at foot traffic, and then you look at road traffic, then you assess the business, then you assess the competition, you speak with the tenant, and you have to do a tenant interview. You speak with local councils

to find out what future developments are coming up. And if that's going to price you out, Then you've got to look at the roads. Then you need to look at versatility of the property, what it's approved for by council, looking at comparable sales, comparable rentals, find similar properties and do a vacancy and occupancy study, which is not as easy as residential. I know I'm rambling on, Brooksy,

but there's quite a lot to get in. It's important. Like you can't just look up a vacancy rate of a suburb, like with residential, because what are you looking up? Small warehouse, big warehouse, retail. You need to actually manually go through and find individual comparables,

look at how long their sales campaigns for, with their leasing campaigns, speak with property managers in the area and then do all that. So there's quite a lot of work with commercial, but what was discussed previously, the rewards are there. Getting instant passive income

and getting it right is actually a game changer for your portfolio. Yeah, absolutely. And the key takeaway there from what you've just run us through is that this isn't something for the part-time amateur or first-time. If you're serious about getting into commercial, you want a professional and experienced commercial buyers agent on your side who's able to hold your hand and walk you through all of that so that they're looking at the risks and know what the risks are, rather than potentially stepping on a landmine that you don't even know that's there.

So look, mate, I really want to thank you again for giving us these eye-opening insights, Steve, and thanks again for your time on the show today. No worries. Thanks, Bushy. Thanks, Steve. Well, there you have it. Before you jump from residential property into the somewhat alluring world of commercial, make sure you fully understand the risks as well as the rewards. And the best way to do this is to start by grabbing yourself a copy of Steve's great book, Commercial Property Investing Explained Simply, if this is more in your wheelhouse. You're watching Realty Talk, your go-to place for all things property.

Property deductions can save you thousands of dollars each year. To make sure you maximize deductions you need to work with the most experienced quantity surveyor in the country bmt tax depreciation is the leading specialist in the industry they've completed over 700 000 tax deduction schedules for residential investment and commercial properties australia-wide bmt guaranteed to find double your fee in the first full financial year deductions call bmt on 1-300-728-726 today for an obligation-free quote. Greetings and welcome. Now, as property values around the country soften and plateau following the second largest property boom in the 230-year history of our nation, property investors are left wondering how can they

continue to stimulate equity growth? Because it's likely that we're entering a period when the free ride on value growth by slipstreaming on the coattails of emotionally driven FOMO or fear of missing out homeowners has come to an end and serious property investors will have to start creating and manufacturing value increases themselves and one of the best ways to do this is through clever renovation. But with all the negative mainstream media fear-mongering about material supply issues and lead time delays, rising construction costs and builder liquidity concerns how can you navigate this to produce profitable property outcomes? Well to discuss what renovation strategy is best during these challenging times, we're joined by renowned renovation coach Belinda

Smith, who's the founder of the Rare Consolancy Collective, which is short for Renovate and Real Estate. So welcome back to Realty Talk, Belinda. Thank you for having me. I like it here. Yeah, likewise, and I'm really looking forward to digging into this subject because it's an area that's going to have a growing demand for the times that we see ahead in property. So I did sort of kick things off and to get straight to the heart of the exercise, what sort of a renovation strategy do you think is best for 2022? You were so right when you mentioned the old hold and hope strategy of hanging on to property and expecting it to grow. We have had an amazing couple of years, but as property does soften, I think you're only left if you're serious about

investing and continuing to grow your portfolio and to continue to buy more property and drag out equity and and go and do it again and all the things that we like to do as investors you have one choice and that is to renovate and i think that the easiest and fastest way of doing that in a market which you may not be sure of is a cosmetic renovation and there is you know i like my guys to do no less than fifty thousand dollars profit from every cosmetic renovation so and it depends on the level of property you're playing in you might be in an expensive property where can make much more which is awesome but you know i think that we're left with no choice but to force value upon properties ourselves and cosmetic is the way to go anyone can do one pretty yeah

absolutely and a great way to start and uh without spending a lot of money you can manufacture quite considerable increases in value you know i'll sort of mention the the challenges in the construction industry at the moment so how do we go about uh finding a good builder in this market then finding a good builder is no different than it used to be however i think we our expectations around how much attention they're going to pay us has to change if you're after a builder we have to understand that they're busy they may not want to take time out for quotes perhaps we'll have to pay them to get them on site to quote we need to be really mindful about being great to work with not being annoying um if you if you're lucky enough to get three good quotes

pick one don't just keep interviewing and interviewing more builders because there will be a lot of time wasted so if you're lucky enough to get a builder who ticks all the boxes then uh take them on you know i think that's changed a lot what i do know to be true is that the media says that you can't get builders right now and yet my guys are renovating day after day after day. We're getting tradies and we're working with tradies. We're continuing to turn over properties. So what the media says and what's actually going on, two different things, but we definitely can't play it like we used to. I totally agree. There's a lot of fear mongering and scare mongering in the media, which can often paralyze people and give them the impression

that the opportunity is not there when the reality is you pick up the phone and start talking to people it's often the reverse I totally agree and let's sort of moving through to supply now given some challenges there how can I actually get my hands on product at the moment then Belinda? I think it's a little bit the same too in that it's a mindset shift where and it's just changing the way we used to do things the minute you actually settle on a property or even before you settle on a property sorry the minute you exchange on a property you know it's going to be yours that's the time where if you can get access or permission to access you should be measuring up you should be ordering your product really early the more stuff you can do up front

the easier your renovation is going to be and the other thing is you know we used to be able to go and quote product against product like we'd look for a vanity and we we'd get our perfect vanity and we get it at the price we want now if your perfect product isn't in it's time to go straight to your plan B. It is about pulling the emotion out of your choices and just saying, okay, the eye on the prize is a profitable flip or a profitable cosmetic renovation. And so if I can't get the exact product that I usually get, I'm prepared to go to plan B just to keep the project moving. So a lot of it is just rolling with the circumstances of today and understand that they're different than what we had four or five years ago. Yeah, very good point. There's

always an opportunity there if you dig hard enough. Obvious question to bring us to a close then, is renovating still profitable then, Belinda? Yeah, 100%. I think that people's desire, the general community, to live in a really beautiful home, people's desire to rent really beautiful homes will always mean that a really nice renovation will sell well and sell for more. And that is the goal. And so, yeah, there's still plenty of meat in the sandwich. There really is. It comes down to choosing the right area and a really good property to do, something that's not too long-winded or too much of a struggle for you in your own personal circumstances and your own skill set, and just moving forward with the process and finishing that renovation on time and on budget and taking it to market. Yes, still a profitable thing. I totally agree.

And if you manage it like a business and you control your costs and you control your time delivery and you don't let your emotion get in the way and start spending additional money on things that don't really add to the value, then it's still a great way to generate equity. So, look, as always, I want to thank you for clarifying all of this with us, Belinda, and thanks again for your very generous time on the show today. Thank you. You're welcome. Thanks, Belinda. Well, we've seen yet again that in the diverse world of property, where there's a will, there's always a way. And if successful renovation is something you'd like to explore more, reach out to Blender

and her rare team at renovateandrealestate.com.au. Stay with us for more here on Realty Talk. Successful property investment is a game of finance. Do you have the right team and the right game plan? Realty Talk is brought to you by KnowHow Property. More than mortgage brokers, Bushy Martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs, tax, risk and stress while increasing your capacity for growth. KnowHow has helped over 1,900 homeowners and investors secure more than $800 million in property wealth. So get set to live more, work less and live your legacy.

Want to know how to invest in your freedom? Visit knowhowproperty.com.au Greetings and welcome. Now as an investor, how would you like an extra $100 to $200 a week in your pocket? Would this make a substantial difference to your cash flow? Well, I may just have a simple and useful suggestion on how you can achieve this. because as interest rates are on the rise and your living costs increase with inflation, investors are increasingly under pressure when it comes to the ongoing cash flow affordability

of their investment properties. As we've always said, property success is all about affordable growth. So what do I mean by this? Well, many investors look at the growth potential of their investment properties, but spend very little time looking in detail at the actual cash flow affordability of holding the property long term, apart of course from subtracting the loan repayments from the rent to see if they can afford the gap. But this is only scratching the surface as proper financial structuring and cash flow modelling will make or break your ability to afford your property and to last the distance over the next 15 years or more to enjoy the full rewards that your property can deliver. Because there's no point trying to survive on a diet of

two-minute noodles and toast if your investment property is pulling large amounts of money out of your pocket every week, every month, and every year. Reality is that you just won't sustain this for very long and you're likely to join the ranks of the other 54% of first-time investors who generally sell their properties within the first five years and lose money because they haven't fine-tuned their ongoing cash flow affordability. So in our experience, careful cash flow affordability is absolutely critical to your investment success. So how can you improve your affordability in the current environment where costs are on the rise and interest rates are increasing every month? Well, this is where a long established but little known and little

utilised technique can come to your rescue. I'm talking here about withholding tax variations. Now, what does this mean? Well, in simple terms, if you've bought the right type of property and has been structured properly, a good investment property will assist you in generating somewhere between $5,000 to $10,000 a year in tax refunds, depending, of course, on the property, how much you spent, and how much you earn. Now, normally, you'll get this $5,000 to $10,000 back as a lump sum a month or so after you've lodged your annual tax return. But if you're a PAYG, or pay-as-you-go salaried employee or a self-employed and you also pay yourself a regular wage or you're self-employed and lodge regular BAS statements, then instead of waiting for the end of the

financial year to get your lump sum tax return back, your accountant can actually help you to facilitate a withholding tax variation where you get a portion of this back in every pay. So as an example, if your investments assist you to get an extra $10,000 a year in your tax refund, then you can get a portion of this back every pay. So if you pay weekly, then you'll end up with an extra $192 odd in your pay packet every week. Now, would an extra $96 odd to $192 a week help your cash flow affordability? Well, chances are this will help you substantially. And here's the real kicker. Because if you use these additional regular monies and funnel them

to your offset account against your property loans, then these extra regular funds will shave years off your loan term and potentially save you tens of thousands of dollars in loan interest. All just by getting your property savvy accountant to orchestrate a withholding tax variation with the Australian Tax Office, who will then liaise with your HR or payroll office to ensure that these extra monies are in your pay packet every pay. But remember that if you do this, you won't get that big fat tax refund at the end of the year. Now, I need to stress that I'm not an accountant and what I'm making you aware of is not in any way intended as taxation, accounting or financial advice and these suggestions are purely general in nature. So if any of what I've

talked about today is of interest to you, please reach out to a qualified accountant who understands the ins and outs of property so they can consider your specific personal situation. So in summary, If you're an investor that's looking to improve your cash flow affordability by putting more money into your pocket more often, then withholding tax variations are well worth considering. That's more food for thought. I'm Bushy Martin from KnowHow Property Finance. Stay tuned for more. Property depreciation is the natural wear and tear of a building and its assets. Property investors can claim depreciation as a tax deduction each financial year. Depreciation is a non-cash deduction.

This means you don't need to spend any money in order to claim it. On average, BMT tax depreciation find residential investors almost $9,000 in first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. Well, that's another wrap for this week's show. Another big thanks to Steve Polisi and Belinda Smith for sharing their timely insights. and before we go make sure you don't miss another episode of your trusted voice in all things

property by subscribing to realty talk now on apple podcast google podcast spotify youtube or wherever you listen and make sure you jump on channels.realty.com.au forward slash realty talk and click on the subscribe now button to get a free copy of my award-winning book get invested and while you're there make sure you check out one of australia's most extensive range of properties from sale from over 7 000 agents nationally where you'll even find properties that aren't listed anywhere else thanks again to realty.com.au and bmt tax depreciation for their ongoing support i'm bushy martin from know how property finance remember to always get invested and i look forward to seeing you again next week miss something in this week's show or want to catch up on past shows

do it anytime at realty.com.au where we connect buyers sellers and agents differently