In order to satisfy your Investment Objectives you will need to set certain Buying Criteria – against which you will rate each and every investment you undertake.
Again, these Criteria are ranked in what has (over the years) become accepted as being their relative importance, for making a sound property investment.
1. Tenant Calibre & Lease Term
By themselves, these two Criteria could prove to be the two most important to you – if you intend to achieve any of your investment objectives.
Ideally, what you’ll look for is a strong corporate (or government) tenant – with a minimum of a 5-year lease term. With that in place, you’re well on your way to making a successful investment.
2. Recent Construction & Flexible Design
Generally, whenever a property has been recently constructed, it means it will have ongoing appeal to subsequent tenants. And again, this will help to ensure that many of your objectives are met.
And it also means you’ll start to enjoy significant Tax Benefits.
Likewise, a Flexible Design means that you are not left with an inefficient floor layout, if your principal tenant were to vacate at the end of lease term.
In other words, you’ll have an easily adaptable layout – which will allow you to draw from a wide market, when re-letting is required. At that point, you can enjoy further Tax Benefits – from depreciating any of the refurbishment works that may be required.
3. Lease Structure & Absence of Competition
Lease Structure relates to things like … the frequency and method of your rent reviews, who pays the operating costs, and to what degree a tenant is responsible for total building maintenance … all of which will impact upon many of your objectives.
Absence of Competition relates to how many similar properties there are, nearby to yours. This determines whether the market could become over-saturated – which may affect your return from the property, or make it difficult when it comes to re-letting.
4. Good Position & Emerging Trends
All other things being equal … the better the Position, the better your property will perform. But, as you’ve seen from the earlier criteria, Position alone should not be your sole determinant.
In recent eBulletins, you’ve already analysed some of the investment opportunities emerging through demographic trends. But equally, new trends are emerging in relation to construction, design, energy conservation, security, lift technology, automation and so on.
All of which can dramatically improve the performance of any properties you may already own; plus enhance under-performing properties you may be looking to acquire or develop.
Therefore, you need to keep a keen eye out for hidden opportunities to (inexpensively) gain a competitive advantage.
5. Passing Yield & Zoning
If your Passing Yield (ie: the current income for an existing investment) is derived from rentals that are “above market”, it means that you’re unlikely to receive any increases from your initial market reviews. And if your future reviews are fixed, incremental reviews (or tied to CPI), then you’ll only be adding to (and deferring) your problem until the lease expires.
On the other hand, your Passing Yield may be at (or below) market rentals. And this should mean you’ll be able to enjoy an improving cashflow; and maybe, even some Super Growth – if you’ve seen an opportunity which other investors may have overlooked.
6. Zoning relates to your property’s present and potential future uses.
Sometimes a property can have a Non-conforming Use Permit which could allow a residential property to be used as an office. While it can be used now for offices, it may only ever be able to be developed for residential purposes.
If (historically) there has been a large number of these types of non-conforming properties in a given locality, some inner-city municipalities have been introducing “mixed use” zoning to legitimise, and actually encourage, the co-existence of such a rich diversity of uses.
It’s something you need to be on top of, as there are specific zoning and density changes occurring on a regular basis. And you can often make windfall gains if you’re astute.
7. Title Options & Vendor Motivation
If (with little expense) you are able to subdivide the Title for a parcel of land, or an entire building, you are then able to significantly enhance your property’s value AND, therefore, it’s marketability.
You may still choose to sell the property as a whole. But any new purchaser is attracted by the flexibility of being able to sell off a portion of the property, should the need arise. And people will pay you a handsome premium for that flexibility – well in excess of your cost of creating it.
Vendor Motivation is important; but ought not be your principal reason for buying a specific property. Having assessed all the fundamentals, and satisfied your earlier Criteria, a motivated vendor will invariably provide you with some additional interesting benefits. And these can range from: leaving some money in the property at a low rate, on second mortgage; to allowing you to up-value all the Plant and Articles, so that you can depreciate them from a much higher base.
With a motivated vendor, your prime focus quickly moves away from the price and starts concentrating on how to structure the most attractive contract terms.
Kris Mills of Words that Sell ( http://www.wordsthatsell.com.au/ ) is a top selling copywriter, trainer and author of numerous how-to guides including Proposals and Tenders (Bids) that Sell. Kris has also produced a FREE ebook entitled “11 Bid Writing Sins and How to Avoid Them”. To arrange a FREE copy, visit:http://www.wordsthatsell.com.au/tendersebook.htm
