Page 53 - Paulisms: Gold Nuggets for Small Business

mistakes that are costly. In saying that, property is forgiving long-term (if bought right!).
2.4.1 Paul’s Simple Rules for industrial/warehouse investment – reduced version
RULE
Rent type: net or gross lease
Standalone or unit investment
Location Structure
Obsolescence adverse
Speciality properties Raw land
Rent reviews
Personal guarantees
OUTCOME
Net lease: tenant pay all outgoings, e.g. insurance. Proven rule with recent escalation of insurance premiums with gross rents (increase on landlord).
Standalone: no body corporates to minimise administration and issues with other owners in the complex.
High-profile location which will nearly always be in demand and yields are stronger.
Beware leaking roofs and buildings, asbestos or buildings not up to 67% EQ spec., or factor repairs and maintenance into the purchase price. Under spec. could create opportunity, as not always expensive to bring up to spec.
Beware disruption, e.g. changes going on in the market that can make the tenant obsolete, e.g. banks – although sound, it’s not necessarily a long-term investment with disruption. (Remember video parlours.)
Avoid. Properties designed for the tenant’s craft, e.g. food industry – hard to find new leasee of same industry.
Avoid. Unless developing in the short term – no cash flow and cash negative.
Look for rent reviews early after the purchase for yield potential and staying at market rent.
Avoid being locked into CPI reviews only, as need market rents. However, CPI rent reviews between market rent reviews is ok.
For long-term security.