The five golden rules of commercial property investment: Chris Lang

With the proper guidance, commercial property will prove to be a very rewarding investment — and in different ways.

However, there are several golden rules you really should keep in mind.

1. Safeguard your equity

Never allow yourself to become totally mesmerised by return on capital. Your first consideration always needs to be the return of capital.

Protecting your equity will involve undertaking the proper due diligence at the time you purchase. However, it also relates to having the appropriate insurance policies in place — to protect your property in case of unforeseen calamity.

2. Control your costs

You can do this in two ways. First, by ensuring the lease structure provides for a net rental — where your tenant becomes responsible for the building operating costs.

However, this rule also relates to the interest on your mortgage. In the current market, it would be far better to avoid surprises and fix your rate than try to save 0.5% per annum on interest costs.

3. Look at how you can add value

Try to only purchase properties that  provide you with "an angle".

These include things like being able to subdivide the building into smaller components. Or recognising an under-let tenancy that is an approaching market review. Perhaps there's an opportunity to upgrade (or transform) the property, when the lease expires.

4. View commercial property for the longer term

Bought correctly, your properties will not only provide you with handsome returns now but also build up additional collateral within your overall portfolio. That way, you will be in a position to release additional equity and acquire further similar properties down the track.

5. Your tenant is ultimately your success

The intrinsic value of your commercial properties lies in both the amount of rent to be paid as well as the fact that it is paid.

Therefore, it is sometimes wiser to accept a slightly lower rental and lock in solid tenants on secure leases. Then you need to look upon those tenants as "your partners".

Their wellbeing will be reflected in the future returns your properties generate. If your tenants have something causing them concern, you should respond quickly and with genuine empathy.

You can be businesslike,and still show understanding — because your ultimate success is very much based upon a team effort.

Bottom line: Clearly, there is more to commercial property than what is contained in these five rules. But you can explore this in far more detail and gain an even better understanding of how commercial property really works.

Chris Lang is an advisor to commercial property investors, sell-out author and regular speaker on how to invest in commercial property. You can visit his website Property Edge Australia to help you get the most out of your commercial property investing.