Five essentials for a healthier commercial portfolio
Commercial property investment requires a multifaceted approach and attention to many details but following these five top tips is a good starting point in building a successful portfolio.
Building a healthy commercial investment portfolio requires careful planning, research and risk management. It's essential to know the risks and rewards and to have a solid understanding of what can impact your investments.
A well-constructed investment portfolio can provide a steady stream of income, capital appreciation and diversification, but with an ever-changing market, building a successful commercial investment portfolio can be daunting. Investors need to consider a variety of factors when selecting assets for their portfolio.
Here are five essential items for your healthy portfolio checklist.
1. Perform a lease check-up
Know the status of your rental leases. If you are faced with an expiring lease, be prepared to negotiate a new rental square metre rate.
Rent is increasing in most parts of the country, so this is an important part of your lease check-up. If you don't try to maximise the rent, you could miss out on equity opportunities.
Properties with higher rental income often have higher property values. This can help you build equity in your properties, provide greater returns on investment when the property is sold, and increase your overall net worth.
2. Consolidate your insurances
Having adequate insurance coverage helps mitigate investment risks by providing financial protection against unexpected events like property damage, natural disasters and theft. Adequate insurance can also protect you against legal claims and provide financial assistance to cover any legal fees or damages.
This helps protect your investment portfolio and ensures your assets are safeguarded against potential losses. As adequate insurance is a must, consider using a commercial insurance broker to shop around on your behalf. This service could result in some cost wins.
3. Build depreciation reports
Depreciation reports help you accurately value your properties by assessing depreciation over time.
Accurate valuations are essential for making informed decisions about buying, selling or refinancing properties.
Having depreciation reports for all your properties can provide valuable insights to help you make better investment decisions. You can also use the information in the reports to budget for maintenance and repairs, which can help you avoid unexpected expenses that can eat into your profits.
By not having depreciation reports for all your properties, you risk missing out on thousands of dollars of depreciation benefits for each property.
4. Look for value-adds for your properties
When you know the value-adds of your properties, you can use this knowledge to negotiate better lease terms, which can increase your potential returns.
Value-added properties can provide a competitive advantage as they are more attractive than properties that do not have any value added.
Value-added properties often have the potential for long-term appreciation, as the improvements and upgrades made to the property can increase its overall value.
This can result in increased cash flow and equity growth over time, for example, installing solar panels or renegotiating leases after capital works are completed.
5. Secure the lowest interest rates
By securing a low-interest rate on your loans, your monthly payments will be lower. This means the extra cash can be reinvested into your portfolio or used to cover other expenses.
Overall, this can help you manage your cash flow more effectively.
Lower interest rates can also increase your borrowing power and increase your ROI by reducing the amount of interest you pay on your loans.
This means you can earn more money from your investments and grow your portfolio quicker.
By regularly reviewing your portfolio, you are setting yourself up for success in achieving your long-term investment goals.
Market conditions can have a significant impact on the performance of your portfolio, so it's important to stay up to date on economic and market trends and adjust your portfolio as needed to take advantage of opportunities and minimise risks.