Planning on buying 5 properties in 5 years and exponentially growing your property portfolio? There are many people providing strategies that give you advice on rooming houses, residential flips or even granny flats, or maybe NDIS housing, but the true asset is commercial property.

There are a lot of questions that beginner investors want to know when it comes to commercial property investing and we’re going to answer them for you.

How much money do you need to get started?

If your goal is to grow to 5 commercial properties in 5 years, then you need about $200,000 to $250,000, at minimum, to get started.

If you have $200,000 or $250,000 with a little bit of buffer, then you could get started with buying a $500,000 property. That $500,000 property is going to be vacant. The market is scared of doing vacant properties because they just want the property tenanted, but in reality, if you look at the current tenanted property market you’re going to get 6% in a metro area like ACT, a 7% in Regional areas and with the interest rate already hitting close to 7% you’re barely breaking even maybe getting $2,000, $5,000 or $10,000 in cash flow.

If you’re buying a residential property then you need to forget about the cash flow because you’re not getting any cash flow and to top it off you’re putting money out of your pocket into it. But if you’re always thinking about development then that’s wrong as well because, by the time you pay for the land, the value of land has gone up, the building cost has gone up, so you’re making no margins and you’re actually in the red. This means that you’re paying out money because people aren’t paying the same high amount of money for ready build as they did back then.

This means that we’re at this frictional point where you can’t move forward with your portfolio. You have to find a strategy and the only strategy is commercial because right now this has been trialled and tried in the last couple of years.

Investing in vacant properties

If you buy a vacant property you need to do your research, but when you do your research you need to find a property that is in a nice area that has a lot of demand. It has to be a vacant property of around $500,000 and you’re going to need a No Doc loan. You’re either going to be able to service the loan because you’re young and starting and you’ve got plenty of serviceability or you’re going to need a No Doc loan which is going to be expensive. The loan is going to be 9% or 10% in terms of the interest rate but that’s all part of the holding cost so to get a property at $500,000 you’re going to need about $150,000 or $170,000 in terms of your deposit.

You have a holding cost and that’s why you have your extra $30,000 or $50,000 as your holding cost then you’re going to be using that money for marketing and if you can add in a little bit more buffer than $200,000 you’re going to have money to give your tenant for rental incentives as well as rent-free period.

The whole idea is you get a tenant in and you get them to sign a brand new lease and now the property is worth $700,000 instead of $500,000. So when you sell the property you’re going to be able to get $700,000 payouts and commissions to the bank and, remember depending on the different entities you’re holding, you’re going to have different tax concessions, then you’ll probably end up with $130,000 to $150,000 in your hand.

Now you’ve changed your $200,000 to $250,000 and you’ve added in another $130,000 to $150,000 so now you’re almost at $400,000 giving you the ability to do a bigger deal that’s potentially $700,000 or $900,000.

5 commercial properties in 5 years

When you get to your second flip, you want to be able to refinance and keep that one, take out the money and go again. You want to get to a pattern where you’re doing one every 6 to 9 months. So this way you’re bulking up your deposit as you go along. You may need to flip and sell one because you want to bulk up your deposit and go again.

Ultimately whether you’re holding on to your small property or you’re getting a large one you are going to be able to accumulate five commercial properties over those 5 years. But the first one is key because if you get it right then you can continue to do it. Get it wrong and the plan is gone.

That’s why it’s so important to have a team behind you who understands what you’re trying to achieve.

Get started on your commercial property journey

Five properties in five years is achievable but you need to have a plan and you need to have people behind you who are going to give you the right blueprint to move forward.

By following a step-by-step strategy or working with a buyer’s agency that has the expertise to support you through that process, you can achieve wealth faster and more effectively.