one.

And the reason for that is when that tenant leaves, it's going to come back to market rates.

You've actually bought a property.

You've paid a premium for a property for the guaranteed of a lease.

And I'll use another example.

If I've got two body corporate warehouses side by side, Both exactly the same type of asset, but one's got a really good blue chip tenant in it.

And it's say five and a half percent.

Oh, really? You reckon? Let's talk about it.

You know, 'cause you've gotta have a sorting, right? You can go to realcommercial.com, but you've gotta have a way of figuring out how do you actually find that 10 under a million or whatever you mentioned before.

I, so I've got six acquisition staff, basically every capital city, and they're kinda state-based, so they're just looking...

Or so I, I actually look at everything because something can be right for the right client.

So an example would be, I wouldn't buy a industrial warehouse in Townsville.

Um, other buyer's agents are.

Vacancy rates are like one to three years, so I don't care that you're getting a 6% net yield there.

If it goes vacant, it's a minus net yield because you're paying council rates, water rates.

So isn't that a risk?

Mm.

So I'm one of those people who I actually don't care at all about what the interest rates are at the moment.

I stress test my portfolio.

I've got my big spreadsheet, and I do it at 2%, and I do it at 12%, and I know it's gonna fluctuate between there.

What generally happens, though, is when you've got high interest rates, you get rental increases as well.

So even if you leverage something at, we'll use round numbers, it's not quite like this, but let's say I get you a 6% net return, and you get a 6% interest rate on that.

That's net return.

Mm.

What do you look for in that commercial

property? Good question.

And when we get your clients, it's very easy because you've already done all this for us.

But typically what we'll do is what they actually want to achieve over what timeframe? And the reason I ask this is it's important to know what type of asset you're going to get them because you mentioned before they might sell this asset and pass it on to their kids.

So the capital growth is the main focus for that one.

If they came to me and said, hey, look, we're using this for retirement, we want the income, the capital growth is less important than the cash flow because they want their cash flow.

And the cash flow might be $100K, might be $200K.

Yep.

So what we're talking about here is how the value of your properties go up and what drives it.

Yeah.

So maybe I'll explain different.

So net yield versus gross yield, which will flow into cap rate.

So net yield is after all the outgoings outside of the bank loan, what do you get? And the reason why you talk commercial, you know, say a 6% net yield, tenants cover outgoings, council rates, water rates, maintenance, insurance, land tax on industrial.

So that's the money you get.

You buy a million dollar asset, 6% net yield, you get 60 grand in your bank account minus the mortgage repayments effectively.

Is that where you sort of start at that level? Yeah,

... what does that mean for those who don't know? Uh...

Yeah, so basically the, the tenant is locking them into the period of the lease term.

So if they sign a three by three, that... or three by three by three, that means by, for the three years, there's normally a guarantee as well, Terry, on this.

So when they sign the lease they'll either have a bond, which is like typically one to three months.

They may even have a personal guarantee on it as well, which is, uh, or a bank guarantee.

Basically saying, "If I can't afford the rent, here's my collateral.

Um, I'm gonna give you rent for this three years no matter what." At the end of the three years they can then, they get first right of refusal, so they get to stay on.

So how do you determine that it's a good location, like vacancy for example?

Because if something goes wrong early on,

Well, you just can't untangle it.

If you go buy a dud commercial property and it's vacant for two years, there's two years you wasted.

Not just that, the property is going to cost you 50 grand a year, probably 50, 60 grand a year to hold.

There goes their savings.

And then they're scrambling being like, let's get a tenant.

Whereas you can buy really low risk residentials in 0.2% vacancy rate regions.

town where the mine closes? Let's go commercial then.

So how do you sort of break it down and, you know, in order of, like, preference of often when you're thinking about commercial, of how you break down the different types and different cities and, and, and regions and, and put a risk weighting and a, a sort of a return on it?

Yeah.

So with, with commercial, there is just way more work you have to do.

You, you don't get to be an armchair investor.

You don't sit on the couch with Netflix on on realestate.com being like, "Ooh, that looks like a nice house in Darwin," like some buyer's agents.

Like, there's so much, there's about three or four hours work just before you can even present the client to the deal.

Then under contract, we do around 20 to 40 hours of due diligence.

But can you sort of give people an, an understanding of when it goes wrong, what they've often done? Um, and you know, a lot of DIY, obviously a lot of investors are coming to this commercial space, and a lot of people just think they can just sort of rose-colored glasses, "I've pulled it off in resi, I'll just kinda have a crack in commercial." But where do they often sort of misunderstand? You obviously mentioned around due diligence, but, like, what, what's some of the other big mistakes people make in commercial?