INSIDE COMMERCIAL PROPERTY: The 101 of buying commercial property through an SMSF
On the latest episode of Inside Commercial Property with Rethink Investing, hosts Phil Tarrant and Scott O’Neill talk ...
Rather than adopting a wait-and-see approach, investors are being encouraged to employ a proactive “double-dipping” strategy, with a housing expert offering three tips on how to carry one out.
Ian Ugarte of Small is the New Big, said property investors could be missing out on opportunities if they take a passive “BHP approach”, i.e. buy, hope, pray.
Instead, the housing guru said investors should take on a strategy that’ll allow them to actively explore ways to increase the base value of a property and understand the capital growth on top.
“A double-dipping strategy requires the purchaser to assess a prospective property for its manual-growth potential (so, what they can do to increase the value and yield of a property), rather than the more traditional checklist of property attributes sought out by most buyers who think capital growth is the key,” Mr Ugarte explained.
“Since buying a property is likely to be the most significant capital investment a person makes, buyers need to resist knee-jerk, FOMO-inspired purchases of properties that are unlikely to enable manufactured growth strategies.
“Instead, the first thing prospective buyers should do is scrutinise a property to gauge where they could make adjustments to add value, or to densify the property to compound the upward trending property prices.”
There are three ways property investors can create growth, rather than wait for it to happen, according to Mr Ugarte.
The first, he said, is subdividing the property where a single property is divided to create smaller parcels out of it.
The second tip he has is to partially or fully converting the property internally, “converting part or all of the space to accommodate co-living arrangements, for example, by creating micro-apartments”.
Third, Mr Ugarte advised investors to consider building an additional external building on the property, “adding an external building, like a granny flat”.
“You really should have a shopping list of manual growth strategies when you’re looking for a property and only consider those that would allow you to employ at least one of these strategies,” Mr Ugarte said.
“Sadly, when you compare the financial outcomes of an active versus a passive property growth strategy, the difference at the end of your working life can be huge, which means its impact on things like your retirement is significant.
“Sure, you should never double dip at a party, but when it comes to a property investment, double-dipping is a must.”