IT NEVER CEASES to amaze me how many commercial property investors feel they can simply purchase a property, and then file it away until the time comes to sell.
And yet, they still expect to achieve a huge capital gain during that period.
These type of set-and-forget deals tend to prevent you from extracting the best outcome for your property. And that’s where the opportunity for Super Growth comes in.
Here are 7 simple strategies you could look to implement progressively, after you have settled the purchase.
Refurbishing or Upgrading the Property.
Mostly, the property you purchase will be in good condition. And in any event, it is unwise to embark upon any improvements within the first 12 months – because the Tax Office will consider that to be a capital enhancement to the property.
As such, they will treat it as part of your part of your initial cost base – and not allow you to claim it as a deduction.
However, conducting a creative upgrade later on can quickly (and significantly) improve the appeal and rental value of property. And that in turn means immediate capital growth for you.
An upcoming Rent Review.
It is best to begin the review process well in advance – by showing some interest in improving the property, at least 12 months before the review date.
This might take the form of improving the garden area, or painting the outside of the property. Although in some cases, tenants may actually be responsible for painting, under the terms of the lease.
However, that’s generally constrained to the interior of the property – unless they are the sole tenant. And by you spending a little money on the property … not only enhances its value, but also puts the tenant in a good frame of mind mind – when it comes to the rent review.
The key thing is to avoid tenants thinking you are merely trying to exact every dollar out of the property, without actually contributing anything to it.
But as soon as you achieve that higher rent, it adds immediate value to the property.
Subdividing the Current Property
What we are talking about here is a single floor that can be subdivided.
Or perhaps multiple floors, for which separate titles could be created.
Maybe, even an industrial property.
If it’s a building with a piece of land beside, you could simply carve that off on a separate title.
That would then provide you with the opportunity to either create a new building on the vacant land; or simply obtain a planning permit permit, and sell it off separately.
Either way, you can improve your overall return. And at the same time, potentially reduce amount of equity you have remaining in the property.
The concept of carving the property into smaller titles means you effectively buy the property wholesale; and then, create several smaller titles. And this adds value, because they are now more-marketable components.
And even if you choose to sell the property as a whole … the next purchasers have the comfort of knowing that (if ever they got “caught short”) … they can sell off one of the additional titles – rather than having to dispose of the entire property.
Essential Services Compliance
This next avenue might not be quite so obvious. There are a couple of reasons for doing this – the first one is clearly for safety and protection.
As such, your tenants will obviously feel far more secure.
However, from a marketing point of view … having detailed, up-to-date documentation on the site (recording all the regular inspections of the building’s plant and equipment) … demonstrates a well-managed building, to any would-be purchaser.
As such, they tend not to delve deeper looking for further issues.
Preventative Maintenance program
Here’s where you have a building consultant map out a program going forward – based upon the economic life of the plant and equipment.
Things like lifts and air conditioning (and any other components in the building) can be progressively addressed in your program over several financial years – to help meet your cash-flow capabilities.
But also, by carry it out progressively, that will enable you to maximise your tax deductions for those components.
And if that work is deemed to be maintenance, it could well the recouped from your tenants under the terms of their lease.
Therefore, instead of waiting for things to break down and having to replace with whom as a capital outlay … you cannot only make this a deductible expense, but also spread that cost over several financial years.
Renegotiating in Existing Lease.
Your tenants may or may not have an option – but would like the added security of tenure, because they may be in the throes of selling the business.
This could provide you with the opportunity not only increase the rent; but also, introduce an automatic annual increase, as part of the bargaining process.
Changing the Use of the Property.
Your current property may be used as a warehouse within a mixed-use zoning. As such, there might be a growing demand for offices, which command a higher rental.
Alternatively, the current ground-offices maybe more attractive as retail premises – allowing you an even greater rental return.
So hopefully, you’ll find today’s Answer has given you a few ideas on how you can creatively add value yourself – over and above whatever the marketplace might deliver.
And you can now understand the value in carefully selecting the right managing agent, to help you implement some of these ideas along the way.
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