From last issue, we are now aware of the advantages of investing in commercial properties. Now the big question is where do I start and how do I begin?

Chan Ai Cheng continues to speak to Renesial Leong, Asia’s Queen of Property for more of her insights.

 “A good plan today is better than a perfect plan tomorrow” remarks Leong excitedly.  Begin your investment journey with a solid plan, what it is that you would like to achieve financially with the property purchase. A true financial asset is one which generates an income. Investing in property is very much like playing a game. To play the game you need to understand the game and the rules of the game, and only then you can employ good strategies to win the game.

Start with a Target Area
It is always good practice to invest in an area you are well familiar with. There are six important questions you need to ask before you decide on your target area

Next, Match Your Available Investment Capital to the Right Type of Property
Simply put, it means knowing the prices of property in your target area. You have to determine how much of investment capital you would like to set aside to invest. Say if you have RM100,000 cash as investment capital, you could consider an investment property close to RM1 million assuming financing is easily secured at 90 percent of the purchase price. With this in mind, the type of property you select can range anywhere between RM100,000 to RM1 million. Check up the classified advertisements and with real estate agents to match your investment capital with the selected type of property. It is good practice to record and keep details of site visits for reference to help you select and buy the right property at the right price.

What is the Cost of Acquisition?

With any investment, seek to understand and be prepared for the cost involved in the process. Do not overstretch to buy properties that are above your budget and put undue strain on your cash flow. The cost involved in the process is the purchase price, legal fees, stamp duty, financing cost and tenancy reassignment where applicable.

Should an investor buy direct from developer or in the secondary sub-sale market?

Well, there are both pluses and minuses in both options. Some investors do not like to invest in properties that are currently under construction because they feel that their money is tied up in down-payments without seeing immediate rental returns. While others favor to invest in these properties as the billing for progress payment, as the term suggests, is progressive and is a great help in easing their cash flow and past records show capital appreciation upon completion. It all depends on which suits your personal financial standing and your plan. When buying off-plan, check reliability, track record and reputation of the Developer. Buying in the secondary market, you get what you see.

General Overview of the Buying Process

What is Considered a Good Yield?

My rule of thumb when it comes to yields is when it pays 1.5 to two times the local fixed deposit rate (FD). Be aware the major outgoings for property investment would affect the overall yield. The major outgoings are quit rent, assessment, insurance, real estate agent fees for securing a tenant, vacancies, service charge, maintenance and repairs, improvements, acquisition cost and exit cost.

What Are Some Ways to Add Value to Your Commercial Property

Be aware that the value of commercial property can be created intentionally or unintentionally. By adding value to your property, you can get higher rental returns, reduce vacancy rates, get higher appraised values to get higher margins of loans, or sell for higher prices.

Five Fool-proof Ways to Brighten up Your Property

Space
Maximise usage of current space and/or create more usable space to maximize rental returns. Where ceiling heights allow, explore if you can create a second or third floor where appropriate to suit your tenants’ usage and bring in more rental income.

Remodel
With landed property, reclaim and enclose a parcel of land to add more build-up area if it makes financial and functional sense. Practice ‘rightsizing’ to suit market tastes and preferences. Where necessary, change the tiles and/or carpets and use colours to make your property look more upmarket and modern.

Add Curb Appeal
Five pointers on adding curb appeal are landscaping, creating a view, enhancing a picture perfect view, eliminating a negative view and reducing noise.

Know the Advantages of Sub-dividing
By sub-dividing properties, you could make it more affordable to your tenants, spread vacancy risks by having more tenants, and bring in more rental revenue.

Maximize Profits from Your Rental Properties
One of the best revenue generating medium is to rent your roof-top space to media companies for billboards or to telecommunication companies for placement of substations, satellite dishes and/or antennas. Besides that, a small part of your rooftop can also be rented to a company which installs wireless broadband equipment. For corner units of commercial properties in strategic locations, even the side wall of the building can be used by some media companies. The rental is normally paid yearly, half yearly or quarterly. Naming rights is very common in the US and has been in Asia for more than 10 years. By far the best way to enhance your property’s value is to keep it looking good and well maintained. Exercise creativity to add value to your commercial properties.

Any Final Words of Advice for Aspiring Commercial Property Investors?

The first that comes to mind is ‘Don’t Overgear’. If you’re new in the game, buy property with a ready tenant. And if you’ve done your research and considered the factors we’ve talked about and it’s good, don’t hesitate to buy! Commercial properties can be very rewarding and should certainly form part of your property investment portfolio.

Chan Ai Cheng thanks Ms. Renesial Leong for sharing with us on the jewels of commercial property investment. Having read her book, there are many other aspects with regards to Investing in Commercial Property and tips which our 2-part interview is unable to cover. Things like financing, feng shui, how to determine the value of commercial properties, short term investment secrets and long term strategies, understanding the property cycle and lots more. Do get yourself a copy.