Most investors buy commercial property for one reason: good returns. If it’s rental return you’re after, here’s how to make sure you’re squeezing the best rental income from your commercial asset.
Last week, we gave you investors some handy hints as to what a commercial property valuer looks for when they inspect a property. The tips we showed to get you the best valuation possible – location, property condition, relevance, etc – will somewhat overlap for this week’s post: how to maximise rental income for your commercial property investment. And for good reason.
A commercial valuer looks for much of the same things as a commercial tenant, with a few exceptions. Whereas a valuation expert wants to know how favourable your asset will be to the market as a whole, a commercial tenant wants to know how favourable the premises and the lease agreement will be to their individual needs.
Want the best commercial rental income possible? Here are 7 ways to achieve it:
Here we go again. Location, location, location. There are fewer more important characteristics of a high-yielding property than relevant location. The asset should be close to local amenity like cafes, restaurants, major transportation nodes and with easy access to key arteries like highways, freeways and major roads.
Buy in a desirable and relevant location and you’re already in line to generate great rental income.
2. Tenant mix
If purchasing a multi-tenant property, like a shopping centre or office building, it’s crucial you select the right mix of tenants to occupy the premises.
The tenancies should complement one another. The best example is a shopping complex. You may have a large tenant occupying most of the net lettable area – and providing most of the rental income – called an anchor tenant. And this anchor tenant will want similar, non-competing tenants to occupy the smaller neighbouring spaces. This turns the complex into a ‘one-stop-shop’. And customers are all about convenience.
A vacancy in this shopping complex would then be easier to fill with a relevant tenant that will complement the mix of existing tenancies. If there’s a great deal of customers coming into that complex every week, a smart tenant will pay a premium to get some of the action.
3. Lease terms
Getting the best rental income is all about attracting the best tenants. And the best tenants want the best lease terms.
That doesn’t mean you need to lose out on a leasing deal; negotiations in commercial real estate is all about both parties getting a good outcome. It means providing a fair, market-aligned lease agreement. So, ensure you have reasonable conditions in your lease, including appropriate rent escalations and lease renewal clauses.
An experienced commercial real estate investor will know how to negotiate the best terms for both parties. That’s why many Australian investors turn to commercial property syndicators to do the hard and complicated work for them. Want more info on our upcoming investment opportunities? Get in touch.
4. Property maintenance and repairs
You shouldn’t advertise a premises for lease unless it’s 100 per cent sound, inside and out. Every fixture should be operational, from the air conditioning unit to the kitchen cupboard doorknobs.
And if an existing tenant has a gripe – the carpets are old, the ceiling is water stained, the security is outdated – then listen to them. Consider whether their gripe is genuine, and if so, follow through on any promise to alleviate their issue.
A good landlord will make their tenants happy. And happy tenants are typically willing to pay more for a good landlord in a sound premises.
5. Great amenities
Make your property as attractive to the leasing market as possible. And offering great amenities is a good way to do so.
From substantial employee and customer parking to on-site gyms and bike storage to WiFi and modernised security systems. Nowadays, amenities are a huge part of why commercial tenants – particularly office tenants – will choose your premises over a competitor’s.
If you have an office building, you might also do everything you can to ensure the highest possible NABERS Rating. The rating system is designed to showcase a premises environmental friendliness, and this even considers the mental and physical health of employees in that office space.
Promoting your property to the right tenant, using the right channels and branding, will help secure the ideal tenant who’ll pay the most appropriate rental to occupy your premises.
If you’re outsourcing, make sure the leasing or marketing company understands the tenancy market your premises is targeting. Otherwise, they’ll just be shooting from the hip.
7. Competitive pricing
Researching the market to understand the best rental income per square metre, and the most appropriate leasing terms, is a crucial task for investment success. You’ll need to meet the market, not only where it is today but where it is likely going to be tomorrow (and well into the future).
But researching the leasing market and understanding market rents is a time consuming job. Dealing with that much information, which shifts and moves every day, can be exhausting for the average Australian investor. That’s why many turn to the pros.
Get the best rental income by investing in a property syndicate
Getting the best rental income from your commercial property is largely about getting the best tenant. By now you should realise that so much of your success in commercial real estate comes from buying well and managing your property. And from negotiations – both when buying the property and establishing the tenants who’ll occupy it.
First-timers will trip over rows of hurdles. Unless they have support.
Investing in a property syndicate is a great way to get into the commercial property market, secure a robust passive income, and avoid the heavy lifting, complications and headaches of negotiating ironclad leasing terms.
Want to let professionals negotiate for you? Want to invest alongside a property investment company with a stellar track record of providing solid passive income? Then get in touch with Properties & Pathways today. We’ve helped hundreds of Australian commercial property investors add hundreds of thousands of dollars to their retirement fund. We’d love to help you, too.
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Properties & Pathways is a dynamic Australian property investment company. Our completed syndicates have provided investors an average annualised return of 21.97%. For more information on how you can invest alongside us, get in touch today.