It's advisable for new investors to seek expert help for best returns
Established property investors looking to diversify portfolios could reap significant rewards by expanding into the commercial side of the market, says Johann van der Merwe, Rawson Properties Helderberg franchisee and commercial asset manager.
“Commercial assets are often overlooked by investors active in the residential sector due to a lack of knowledge on how to unlock their full potential,” he says. “There is a learning curve moving between the two sectors, but that doesn’t mean commercial investments are off limits if you’re not an expert in the field.”
While it is possible to learn the ins and outs of commercial property investment independently, Van Der Merwe suggests new investors partner with an experienced commercial property broker. “This reduces your risk and introduces you to opportunities to which you may not otherwise have been exposed.”
However, when it comes to getting the most from your new investment, there are things an investor can do regardless of whether or not a broker is involved.
Van Der Merwe shares these tips:
Improve the kerb appeal
To attract high-quality tenants willing to pay premium rental amounts, the importance of positive first impressions cannot be underestimated.
“If the property or its grounds haven’t been cared for properly, the potential tenant is either going to pass or try to negotiate for a lower rent,” he says. “A well-maintained exterior instils confidence and creates a sense of value which often allows owners to increase financial returns.”
Grow your net operating income
Net operating income depends on three key factors: occupancy, rental rates and operating expenses. By improving one or more of these factors, a commercial property will boost its net operating income and increase the overall asset value.
“To achieve this, one has to identify a commercial property with room for improvement in these areas,” Van Der Merwe says. “A commercial broker can be invaluable as their professional network and experience often makes finding and recognising these opportunities easier.”
Optimise your gross lettable area
It’s only logical more lettable space means more rental income, which directly increases the value of an asset. Despite this, Van Der Merwe says many commercial properties fail to add areas like basements, mezzanines and upper floors to their gross lettable area, essentially giving tenants free use of these areas.
“Ensure your gross lettable area includes all areas tenants use. If you can increase these areas with minor alterations, that can be a great idea, but the main thing is to make sure every square metre is earning its keep.”
Consider properties with rezoning potential
Identifying a residential property with potential for commercial rezoning can be an excellent way to bridge the residential and commercial investment sectors.
“Recognising these opportunities requires a good understanding of the underlying factors in the area, and the type of tenant the property could potentially attract. This can be easier with the help of an experienced commercial broker and a town planner, and rezoning can unlock huge additional value in the right place.”
Implement strong management
These are key questions landlords should ask themselves:
Do all my tenants have valid annual lease agreements?
Am I getting maximum escalations, year on year?
Do I send legal notices timeously to all late-paying tenants on a monthly notice?
How many tenants are in arrears, or are non-paying?
“Improving management operations can make an asset much more profitable,” says Van der Merwe.