Existing small commercial property purchase, reposition and renovation.

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As a commercial property consultant, 1998 was a time where I was actively avoiding owning commercial property. The logic was, I didn’t want to be in a position of conflict with my clients, however, it was also because commercial required more equity than residential (between 60-70% instead of residential that at that stage was 85%) before mortgage insurance was needed. I scoured the commercial section of the classifieds (because that’s how we did it before internet), and found a 100m2 beachfront commercial shop with main road frontage for $185,000, and a gross return of $1,000 per month. Now at that stage, commercial returns were typically in the order of 9-10% net, so it would have needed to be more like $2,000 per month gross before converting to the right net income.

Most would pass over it based on this, but I knew something was wrong. A 100m2 shop was worth $350 per square meter per annum net, and so the monthly rent should be almost $3,000 per month. I called the agent, who was then a competitor, and asked for the details and an inspection for myself personally. I soon confirmed the tenant was not on a lease and obviously paying way less than the market rent plus the owner seemed in financial trouble with extensive unpaid council and body corporate charge. So, I made an offer subject to negotiating a new lease within 30 days. They accepted.

Negotiating commercial property was what I did for a living, so I contacted the tenant and they explained they couldn’t afford the market rent. We then ran a classified ad in the very same paper and my then running mate in the consultancy business received a call from a local resident looking to set up a fish and chip shop. Fish and chips opposite the beach are like strawberries and cream! After a short time, we agreed on a new five-year lease with some mutual fit-out works, which then valued the property at almost $400,000 before settlement a month later. Twenty years on, fish and chips are still being sold from the property, though the business has changed hands a few times. I eventually parted with the property in 2009 for just over $600,000.