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🎧 Real deals, real strategies, real results. Learn how to find, fund, and operate profitable property plays from someone who’s actually done it.
Hosted by Andrew Wright, principal of Professionals Southport and a commercial investor who rebuilt after losing a ~$15M portfolio during the GFC, this podcast gives you a straight-talking look at what it really takes to build wealth through property.
Each episode delivers practical frameworks, real deal breakdowns, and honest conversations with high-performing investors and operators across residential and commercial.
But it’s bigger than the episodes. The goal is to build a community of like-minded investors who share stories, swap insights, help each other grow and maybe even do deals together.
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How I can manufacture capital growth in commercial property, there's two main ways. Number one is We're diving into one of the most important topics in commercial real estate, how to manufacture value in a commercial property rather than just simply waiting for the market to go up. Can development approvals and rezoning help you manufacture value?
The most obvious one is, um, rural to residential because whenever you buy a property, you can have a massive uplift by working out a way to add value to that site. Now, the most obvious one is a subdivision.
The top three common mistakes that investors make.
Uh, number one would probably be buying something that's over-rented.
The second mistake I would say is
Hi, I'm Andrew Wright, Principal of Professional Southport, and this is the Andrew Wright Property Podcast. I've built a multi-million dollar property portfolio, delivering a seven-figure annual rental income, and led my real estate team through thousands of sale and lease transactions. In each episode, I share real deals and strategies that will help you find, fund, and operate profitable property deals.
The aim of this show is to provide education and build a community of like-minded investors who can collaborate, share insights, and help each other in each other's journeys. You can make excuses or you can make money, but you can't do both. So come and join us
Hello, and welcome back to the Andrew Wright Property Podcast. My name is Adam, and today we're diving into one of the most important topics in commercial real estate: how to manufacture value in a commercial property rather than just simply waiting for the market to go up. Joining me once again on his own podcast, of course, is investor, developer, and all-round good guy, Andrew Wright who has completed a range of commercial and- Hang on.
You've got the wrong guy, mate Wrong, wrong guy? You said I'd
be a good guy. Wrong podcast. Can we get the right guy in, please? Now look, today we wanna break down some practical strategies around this. I'm really looking forward to it because- Mm ... this is something you've taught me over the c- over the course of this podcast- Mm
that there are things you can actually do to create, let's call... Manufacture is the word, value, um, in many, many different ways than just waiting for the market to, to go up, and renovation. I mean, that, that's the first one that comes to mind. Mm. But there are so many ways to do it, so I'm really looking forward to this.
When did you actually realise, when was that point for you, Andrew, that you c- you could y- you know, that light bulb moment for you- Mm ... when you realised you could manufacture your own growth?
Well, if you think back, we've talked about this on a couple of podcasts now, the, um, uh, the two sheds that I initially bought, uh, in my early 20s where I lost a lot of money on that developer, um, developed a site next to nothing and, um, found a way where he could potentially massively increase the rent on these little sheds and, and made a whole fortune selling these little sheds that cost him nothing based on a, a business plan where you could increase the income of a commercial property.
Now, everything in commercial property is about net income, and the first time that that really crystallized for me, Adam, apart from when I lost money on those sheds, was a very bad story when I set up my real estate business, Professional Southport, in 2008. I had a guy come in, um, asking me to help him out rent his property because what had actually happened is another agent was trying to sell a retail property in Southport.
It was empty. They couldn't sell it. They were asking big dollars, and this is very unethical, but what the agent did was he got a mate of his, um, to set up a, a company with no assets, sign a long five-year lease on this site at an inflated rent much higher than market rent. The company had no assets. On the lease, the d- the, the tenants there did not provide a personal guarantee, and there was just a very, very small $5,000 cash bond.
Now, when the buyers then had a look at that asset, they could see five years of tremendously high rent and at a cap rate, whatever it was at the time, they went in and they overpaid for this property, paid way too much to the extent of possibly a million dollars too much based on five years of high income.
And within months of buying that deal, that tenant walked away. Their company went into administration with no assets behind it, and that purchaser had overpaid to the extent of a million bucks, and all they had was a $5,000 cash bond.
Wow.
Yeah. No personal guarantees from the directors. Um- Did- Yeah. I mean- It, it sounds illegal, and I'm sure it is, but you've just got to be so careful when you buy a property that the rents are not inflated, if there's a lease in place that the company behind it does actually have assets, that you have a personal guarantee from the directors Um, because you can get caught out, and that agent was a commercial agent who knew how to artificially pump up the value of a property with some paperwork.
Wow.
That was my first thing. I actually thought, "Well, isn't that person in jail now?"
Yeah.
That's what my initial thought was. Is it that
agent and the, the-
Yeah ...
you know, that's, um- Yeah,
yeah ...
I don't know what you call it, but it's, um, it's definitely wrong, definitely illegal. Yeah. But, um, but then, you know, even then the legal costs to go after all of that, y- you're still, and you're still stuck with the-
The
person had no assets anyway.
Yeah. Yeah. So, um, a, a good, uh... So coming back to when you realized that you could manufacture-
Well, well, that was it. That agent-
I
see what you're saying ... manufactured a million dollars of equity with some paperwork by getting a, a really big lease in place- I
see. I
see ... at a really high rent. Yeah. When you, when a valuer values a commercial property, they multiply the rent, net rent by a cap rate to come up with a valuation, and that helped that seller make w- it was almost a million dollars too much money, and the person buying it paid nearly a million dollars too much.
Okay.
And the tenant shortly after took off.
Sure. Well, let's wind it back even a little further then. What does manufacturing value actually mean?
Mm. It means increasing value through thin air, and we might explain that, if, if you don't mind, um, talking about the difference between residential and commercial- Sure
where residential you can't really manufacture that same growth. Now, let's take for example two houses side by side. Um, they might both be worth a million dollars. If one tenant is in a property paying $800 a week, and the one next door is paying $900 a week, for whatever reason-
Mm-hmm ...
if you were to pay 500 bucks to a valuer to value both of those properties, if they are identical in nature, built at the same time by the same developer-
In the same condition
they're gonna look at comparable sales, and they're gonna value both of those properties within $5,000 of each other. Now, let's just say around the corner there are two other properties that are commercial in nature, once again built exactly the same on the same block of size land, the same, exact same build.
Let's just say they're two, we'll call it two coffee shops.
Yep
If a cap rate is 6%, say, in a particular area, which is the return that an investor would want if they pay cash for a commercial property, a million dollars a year, if it's a coffee shop, for example, you'd be getting 60 grand a year rent. How I can manufacture capital growth in commercial property, there's two main ways.
Number one is if I can find a better operator in that same coffee shop, a better mom and dad that can make more money and charge them, say, 72 grand a year instead of 60 That extra $12,000 on 60 is 20% uplift. I immediately increase the value of that property from 1 million to $1.2 million-
Hmm ...
and make 200 grand from a bit of paperwork without spending any money improving the building.
Wow.
That's strategy number one. Strategy number two, where we can manufacture equity, is we might be able to get another tenant in there paying exactly the same rent and still make 200 grand uplift if we improve the risk profile of a tenant. So if we kick out the mum and dad coffee shop, or they go broke and move out, if we get Starbucks in there paying the same $60,000 rent, but they sign a 10-year lease instead of a three-year lease, the risk profile of that commercial asset is reduced substantially, and people might be very happy to pay a 5% cap rate on that instead of 6.
Now, that extra 1% doesn't sound much, but 1% on top of 5 is a 20% increase in value. So same, same rent, 60 grand a year, but we also increase the value from 1 million to 1.2 million with exactly the same rent, just by getting a better low-risk tenant.
A better tenant. Amazing. Mm. So you're looking at these, these little things that- Mm
it, it's just a small change that doesn't cost you anything, and you are creating money- A bit of paperwork ... from, from, from thin air.
200 grand there from a bit of paperwork. Either way, getting a mum and dad tenant up the rent 12 grand-
Yep ...
or getting a higher quality tenant into the property. This is where leasing is so important.
How do you know when you're looking at something that you, it, it may be being rented for less than what it could be?
Commercial property can be a little bit difficult because there's not as much, um, data from CoreLogic coming out on what medium rents are for a, a coffee shop in this area, for example.
You've really got to ask commercial property managers and commercial leasing agents what similar deals have been done for, and it, the data is not as readily available. So you've got to get on the phone, you've got to have a team of experts in, on your side and, and ring the commercial agents.
Yep.
How- Or a valuer.
A commercial valuer might give you your time if, if you ask nicely and it's only five minutes, they might actually tell you whether there's a certain couple of leases done at this rate
And that's where relationships can be handy in commercial property.
So let's just weigh up risk versus per- ver- versus return on- Mm-hmm ... let's call it the, the, the, the date of lease renewal and how- Mm-hmm ... close that is when you're actually doing a property deal. Mm-hmm. 'Cause you've got the, the risk of them leaving-
Mm-hmm
but you've got the upside of potentially, uh, increasing rent and, as you've said, g- manufacturing value. Mm-hmm. What are your thoughts on going into a deal when a, a lease negotiation is coming, let's say, within that first six months of within your, you know, y- from the time of you going into the deal and purchasing a, a commercial property?
Yeah, look, if it's an owner-occupier strategy, moving a business in there, it doesn't really matter 'cause you want them to leave anyway, and a tenant will give you six months' written notice, usually as a requirement of their lease, to tell you they're moving out. But if you're a straight investor You've got to have a due diligence clause which allows you to go and talk to the tenants in advance, because the last thing you want is for them to have the wood over you and actually they might ask for a reduction in rent, uh, or they'll move out and you're stuck with a long vacancy, which could be 12 months, and, and y- you're gonna have a disaster on your hand.
So you need to talk to the tenants. You need to come up with that comparable list of leases that you just asked before. Go to them and say, "Well, look, these are three other recent leases of comparable properties, and you're not paying enough rent." And the big opportunity there is even with a, without changing the tenant, if someone's been on a five or seven-year lease and that initial lease may have only had, uh, n- nil increases every year or 1 or 2%, if inflation's been 5%, uh, it, it's probably a situation where they're actually paying a lot lower rent than they should, and that's where you can buy commercial property really well.
Because if you know that they're not paying fair market rent, you can go to them when you're doing the lease renewal and say, "Look, your rents have only gone up 2% a year. All these other comparable sheds down the road have been going up 5 or 6% a year because of the demand and the inflation. We now d- need to increase your rent 20%," and on a million dollar property, that's $200,000 of uplift straightaway.
Wow. Wow. So I wanna now talk some examples, um, that you, you know, you're either about to do or have done. Yeah. So, um, I think Driftwood Court, Hervey Bay. Yeah. Tell me the strategy behind that one. What are you going to do there to manufacture value?
Well, the second, uh, site I purchased there, uh, four to six, uh, I just put under contract a couple of weeks ago.
Uh, I couldn't finance it, so, uh, I've done a seven-month settlement on that one. The back shed has a five-year lease on it with a gas company. They've been there 18 years. I can't actually add value to the back shed. But the front shed is a cold storage facility. There is a gentleman there with his two dogs living in the cold storage facility.
So the, the freezer's turned off. It's not
cold. I was about to say .
He's got a bed there. He's got the little industrial kitchenette and the toilet there, and he's living there with his two dogs. So accordingly, he's on a month-by-month lease paying $600 a week for a property that should be generating well over $1,000 a week rent.
So there's my value add, is I've put in a clause in that contract that this settlement is subject to the seller unfortunately kicking that gentleman out and finding a more suitable tenant. It's actually probably illegal, by the way, living in that place residentially. It's zoned commercial I--
yeah
Um, but it's subject to him finding me a high-quality tenant that will pay about $48,000 a year minimum, plus outgoings, about maybe 56 grand a year.
So $600 a week at the moment. The rent's 36 grand a year, month by month I'm adding value there by saying he has to get an extra $20,000 a year rent on a long-term lease, minimum two to three years. And when you understand cap rates, that extra $20,000 rent, let's hypothetically say it was valued at 5%, it wouldn't be that low- Mm-hmm
but 20 grand at 5%, that's an extra $400,000 of capital increase- Right ... that I'm gonna get from
that
seller-
The minute you do the deal ...
does that deal.
Yeah.
Now, it won't be that much because it won't be 5% as, in a regional area like that, the cap rate'll probably be 7%, not 5, but I'm not smart enough to do the maths on 7%-
so I'm just using 5 as an example. But
it's more than what you've just said.
It's, it's a percentage. It's, it's a, it's quarter of a million or 300 grand uplift there with a bit of paperwork.
Now, why would the seller be willing to do that- Mm ... when he knows what you're gonna get out of- He must be in a situation- Mm
where he needs to do the deal, I would imagine.
Well, the guy's owned it, uh, for 25 years. Um, he's paid next to nothing for it. Um, we've just helped him lock in the 50% capital gains tax before, uh, the tax laws change, so that's one of the carrots that I used. So why don't you sign a contract? Now, we did the deal on the 11th of May, which was one day before the budget we finalized this contract, because he and his family wanted to lock in the 50% capital gains tax discount.
Secondly, as a motivation to him, I saved him $40,000, Adam, because he didn't have to pay a real estate commission or marketing costs, so he saved $40,000 up front. And thirdly, right now, if you value that property, it's not worth its full potential because valuers look at leases, and at the moment with a guy in that front shed at $600 a week living illegally in the front shed, the property's not valued at its full potential.
Absolutely not. Yeah. And if he hasn't gone and turned that into a cold storage facility- Mm ... in the time he's had it, he's, he's not going to, is he? So-
See, this is, this is one of the opportunities in real estate. A lot of, um, people, particularly people who self-manage property, so he looks after that place himself.
He's in his 80s, he's got plenty of other money coming in. He just hasn't been motivated to use that asset to its highest and best use. He hasn't put in the work. He's probably got too much money coming in. If that gentleman had a commercial property manager, there's no way there'd be someone living in there illegally.
The commercial property would've, the property manager would've found a, a cold storage tenant in that property that pays double the rate per square meter than a normal shed.
Mm. Mm. No, great, um, great example. All right, strategy number two, developing excess land Talk me through that
I had one little podcast, uh, a, a little while ago where I bought a church.
Had 1,500 square meters of land. The church was built right up the front. There was all this land at the back. So I bought that site thinking I could subdivide it-
Yep ...
and add a lot of value down the back. Now, I ended up flicking that one on because of some challenges with connecting utilities. But whenever you buy a property, if you can buy it at a rate where you're just basically paying for the improvements of the existing building and what it can rent for, but there's a whole heap of attached land that's doing nothing, creating no cashflow, you can have a massive uplift by working out a way to add value to that site.
Now, the most obvious one is a subdivision. Mm-hmm. If you can subdivide that land off and get a big chunk of your money back in one hit, you're adding a great profit strategy there. Or option two might be to put some hardstands, put some gravel or something and, and rent the, the back space out for some car parking.
Or it might even be not even excess land. It could actually be... I looked at a building yesterday, a commercial property, which was a three-level building, but one, in one section of it, the, it's only one story, and there's all this void area there where you could build on that. Now, with a retail property, it's actually quite expensive to do, but it's very, very common with sheds.
You see a lot of people buy sheds, and if the, uh, height of the ceiling is very, very high, one value-add strategy can build a mezzanine level- Mezzanine ... and put in a little office there for the existing tenants, and they'll pay you a whole heap more rent because they've now got an office on a second level, which was-
Well, wasn't there
it was thin air. You've made, you've made some- I love that one ... net lettable area in thi- out of thin air, increase the rent, and you increase the valuation by a factor of that additional rent. You can have a massive uplift there, not with excess land in that case, just building in thin air. Putting a billboard on the roof- Yeah
doesn't need extra land there,
but- How, how do investors identify these hidden
development upsides? Have a mentor. Have a mentor or get educated.
Yep. Contact you?
Look, there's plenty of people, uh, that can add value. You need to find a mentor. If it's not me, you'll find someone if you search hard enough.
Sure. What signs do tell you that a site is under- underutilized?
Well, a lot of the times it, it comes down to thinking outside the box of what else can I actually do with this site? Because I'll give you an example like- I haven't actually done this strategy, but it, it's one some s- a lot of people listening to the podcast might relate to.
I came to the Gold Coast in 1991, which is 35 years ago. Ferry Road leads into Bundall Road, which comes all, it's like the inland little highway there. Uh, and Marine, Marine Parade or the Gold Coast Highway at the front. When I came here 35 years ago, all of the properties on those streets were houses.
Yep.
Now, people hate living in houses with semi-trailers and, and, uh, one of those Harley, Harley-Davidson motorcycles going past. It's so bloody noisy on those roads. People don't wanna pay high rents and live in those noisy areas. So what's happened over the last 35 years? People who have owned all those houses have thought, "Well, maybe the highest and best use of this property is not as a house.
Maybe it should be a retail shop where people actually benefit from all the signage opportunities of all those cars going past," and they've turned them into, little old houses, into medical-
Mm ...
practices or some other retail shop. Seen that a lot on Ashmore Road. All
of- Mm.
Ashmore Road's a perfect example- Yep
where-
They
were all- For a house-
Yep ...
it's not the best use of the site. It's noisy. People don't wanna live there. They won't pay high rents, and there's a classic example- I
don't know if you'd even find a house there with people living in it- Very
rare now ...
they're all medical centers, they're all dentists, they're all, um, little businesses like that opposite the, uh, the shops.
Very busy road. Yeah. And, um, I, I bet you that started with one, and, um, other people seeing the opportunity.
Yeah, and the rent they would've got for a house on a busy road like that compared to what they can rent it out as a medical practice, I'm sure the valuation's probably doubled. I can't give you some exact-- I haven't done it myself, but I've- Yeah
seen plenty of other people over that 35 years implement that one strategy.
Do you know the rules around turning a residential house into a, a business? Do you know anything
about that? Uh, l- I, not really- No ... but, uh, town planners do. So you don't need to know it all. You need to ring a town planner and say, "Look, on this particular road, if this site is zoned residential," um, if there are precedents in the street of 10 other properties being used for commercial-
You'd pretty much think you're on a, on
a sure thing
yeah, it's gonna be pretty hard for- Mm ... a council to say no if there's other precedents in the street. But that's where your relationship with your town planner, or even a phone call to the council, can get you the information that you need.
Mm. And it, it also, you know, you've taught me to, to, to think laterally- Mm
um, you know, in a lot of things you do there. And as you think, I think about that, you know, the potential for that if you, you know, wanna i- you think about that old one. You, you've got the little unit that you live above your own shop but, you know, if you turn a house into a, into a business on a, on a street, if it's, it's an owner-occupier, there's, um, all sorts of benefits you could have there as well.
Yeah, I, I just remembered another example there. Um, you talked before about lease renewals, Adam. Uh, that site I bought, uh, less than a year ago up in, uh, one of the sites I bought up in Townsville, 15-17 ADZEP. I bought that one with, um, three tenants on month-by-month leases. And the opportunity there, no one could buy it because banks won't lend on empty land with no long-term leases.
No. What I've just done there now, uh, in the last two weeks, is I've signed all three of those tenants on with a bit of paperwork on three-year leases, so a bank will now finance it, and I just paid $1,700 to Herron Todd White to value the place. We got a $100,000 uplift. It's only a little deal. We bought it for 340 It was getting a 12% rental return.
I've just done a, done a bit of paperwork there and get the three tenants from month-to-month leases on a three-year lease at the same rent. I didn't even increase the rent. The valuation now has gone from 340 to 440 in one y- less than, or 9 or 10 months. That's a 30% increase. You just can't do that with residential property.
No. That- That, that's amazing. It's out of- It's an opportunity ... it's out of thin air. It's a bit of paperwork and a valuation. 100
grand out of thin air with a bit of paperwork. Mm.
And then there's more equity to continue the, the journey.
Yep.
So, um, no, fantastic. I mean, look, I'm gonna say it, and I've said it a number of times throughout this podcast, commercial is, is where it's at now.
It's, um, you know, especially with the, the, the changes, um, we've just seen in legislation around negative gearing. Um, we're gonna see, uh, you, you might suddenly, Andrew, have a lot more competition in the, uh, in the commercial investment, uh, market. But, uh, look, that, that just brings more opportunities and, um, more chances for you to collaborate and, um, and work with other people, which is what this podcast is all about.
All right, so another strategy we've got down here to, uh, manufacture value, c- cosmetic and functional improvements. So what are some high return improvements investors can make without spending huge amounts of money?
Okay. Well, I'll, I'll go through some real life ones, um, that I've done. They might not be the, uh, only ways to go, but, um, one of the poorer performing asset classes in recent years ha- has been office premises, and where I occupy my business from, I subdivided 126 meters next door and it's ac- it had actually been empty for 18 months.
I'm paying body corporate fees, rates, and all this type of stuff, and interest on a loan was killing me. So what I did, it was very simple, I replaced the carpets, I repainted the place, I put in some LED lights, and one of the reasons why no one would rent this office is it didn't have a little kitchenette.
So I went and spent 15 grand through Bunnings building a little kitchenette. Now I have a tenant in there.
Yep.
And it's given me 50 grand a year rent. Um, it was a bit of area in my office I didn't need. Yep. I'm just getting an extra 50 grand a year cashflow now. But it was sitting there empty for 18 months.
I had to do something to improve it.
Yep.
Didn't cost me that much, but that 50 grand a year rent will certainly be- pay off that, those expenses very, very quickly, probably, uh, within four or five months.
If using that as an example, and you've got space that isn't being able to be rented out for what- Mm
whatever reason, how do you identify what improvements will get a tenant?
Well, the be- look, I tell you
what- 'Cause you, you said for this one it's a k- it was a kitchenette. That was the, the big one. Obviously the, the paint and the, the carpet, but the kitchenette was the big, big piece to that.
Well, probably it's important to have a really good commercial leasing agent.
Now, in my case, um, I was the commercial leasing agent. I was doing it myself, and the way I found out was simply asking people. I'd done like 10 or 12 businesses inspecting that property, and every time I'd get excited, "Oh, finally I've got a tenant," they'd ring up, "Oh, Andrew, we found a better one." So I just said, "Why?"
And one of the things was, well, not enough natural light. There's not a lot of, uh, windows in this particular property. So I thought, okay, well maybe I should put in LED lighting because there's not a whole lot of natural light. They also said, "Well, there's no kitchenette here, and we'd prefer to have a kitchenette."
So I, I listened to the feedback.
Yep.
Uh, I'll give you another example, Adam. Out at, uh, Ipswich, I bought a site there, and it was, uh, the, the Ellenborough Street, Ipswich story. The main tenant there was a beautiful Rafter & Rose cafe, a long l- long-running business which brought all of the people into that shopping precinct there.
Mm-hmm. And they were potentially going to move out because they'd got notices from the council that they did not have a com- a grease trap in that facility. It was running a coffee shop, but they were doing some cooking, and they were running it illegally because there was no grease trap. Now, in that case there, they couldn't afford to buy a grease trap I said, "Okay, well, I'll spend $30,000 paying for the grease trap if you sign a long-term lease here to stay."
So I didn't actually make any money by investing $30,000 there, but I had to do that because they were an anchor tenant. That tenant there brought all the people into that place, and all the other businesses there were gonna benefit from that anchor tenant. It's like a Woolworths in a big shopping center- Sure, sure
it brings the people there.
Yep.
So I decided to spend 30 grand of my own money. I didn't charge the tenant-
To secure ...
to secure them long-term on a long-term lease so they'd continue bringing all the people into the complex, so other people would wanna have a business in that area.
Yep. And y- you could get other tenants for the bits, bits and pieces around there.
Yeah. Mm. And in that same complex, I decided to invest some money making it a better property. It was a, uh... the car park was all dirt. It was just, when it would rain, it would become muddy and sloppy, and I went to the tenants and said, "Hey, why don't we make this a better area? How about..." I went to all the tenants there, and they paid half of the cost of putting bitumen all over the car park.
So I paid for half of it, but the tenants also agreed to pay for half of it because it made their place better. More people would wanna go there- Yeah ... because instead of walking through mud, we then had a bitumen car park. Yep.
Yep.
Yeah. So- That's just another example ...
fantastic.
Mm.
Can development approvals and rezoning help you manufacture value?
That's the, uh, the best way to get massive uplifts, and we've done a few recent podcasts with land subdivision experts that have had massive uplifts there. The most obvious one is, um, rural to residential, because rural land is the cheapest, and that's where the most uplift is with the development approval.
But look, there's many examples, even from, uh, where I've had, uh, office premises where I've converted it to residential, for example, and there are many other developers that have grabbed particularly really deep, deeply built retail properties. You know where you have a, you go down a main street somewhere and there's a little skinny shop, but it goes really, really way back?
It's that front section that's the most, uh, valuable bit of retail space for a developer because, or, uh, sorry, a business, because they've got that shop frontage, they've got the people. You can rent that front portion out at a lot higher rate per square meter than when you're walking all the way down the back.
So there's plenty of examples where developers have put a wall at the back there, and if there's a street or rear access, they'll build apartments behind there, for example.
Hmm.
Where they get an uplift because the back section there, if you turn it into apartments in the middle of a CBD area, that retail section is gonna be worth a lot more at the back as in a unit, 'cause it's right in the middle of town, whereas a shop-
Only needs the front
they only need the front, and that's where they, all the action is. They don't wanna pay a really high rent for all that area down the back. So that's another example where you can add value to a retail site, for example. Sure. There's probably five others I, I can't think of right now.
How do you know and how do you investigate whether, you know, an approval or rezoning is feasible on a particular site that you're looking at, that it, that it can and will go through?
'Cause obviously there's, there's a fair bit of risk involved, um, if you don't get what you're, you're planning and hoping to, to do with it.
Yeah, education. You've got to know what the zoning allows for there. And for example, uh, that particular example wh- what I just spoke about there, in 99% of cases, the councils would not allow you to build a residential apartment right at the front on the footpath there if it's zoned retail, because the council wants that to be a retail precinct.
Hmm.
But behind or upstairs, if there's a second level, they will allow residential. And this is where a quick phone call to a town planner or the council is gonna provide you with the information That you need. But what I want people, the listeners to do, view, think about is start doing this. When you drive to work every day and drive home, you're probably passing 10 goldmines there.
Have a look at the house on the corner there on the busy road and think, "I wonder whether that would be better off as a medical practice." There's a chemist across the road, there's another doctor's surgery. Those people like to have little clusters there. Start thinking, is there a better use for that little old house on the corner there that no one wants to rent 'cause it's too noisy?
Andrew, if people are listening, I, I host this program with you, so I've, I've been th- I've heard ev- everyone. I've been part of just about- I'm even seeing
truck depots now.
No, no. You know what I'm seeing now? Every time I'm stopped at lights, I'm now looking for where billboards should go. Yeah,
yeah.
I, I, I- That's good
I literally am. Yeah,
that's good.
Um, occasionally I'm sitting there at the thing and I'll be playing with the radio or s- or something there, and then I'll think, I'm at lights here, and, and I'll, I, it pops up and, and then there is a billboard. And I go, "Ah, right." So I now, there's this trigger that when I'm stopped at lights on a main road, I check all four corners.
Um, so do look back. There is a billboard episode, I think it was ab- episode number five, somewhere around there- Yeah ... um, about how adding a billboard to a commercial property can make you a ton of money.
Um- And some, some s- sometimes it's actually not even changing the use, it can be just reconfiguring.
Like I, I manage a property in Br- in Brisbane for another client, and we had a tenant that needed a big area, and they rang me and said, "Oh, what, what areas have you got?" And I didn't have a big space for them. But I thought about this building and I thought, hang on, there are two offices next door to each other I wonder if we can, from a structural engineering point of view, if we can knock down this wall.
And I invited them to come and investigate this site, and we actually did a deal there where they took two offices next door to each other. Initially, they didn't inquire on that site because there wasn't enough space there.
Right.
But by knocking down one wall, we made two tenancies one tenancy, and it was big enough for them, and we did a deal just by reconfiguring the building.
Yep. Fantastic. So a lot of what you talk about is really thinking outside the box- Mm ... thinking laterally, th- look at where opportunities can be, can be made, and that's why commercial, um, I'm gonna-- is far better than, than residential because the o- there are so many different ways and, and, and, and things you, like we talked about today, manufacture value that are just open and available to do that you just can't do with a house.
You can't.
A house is a house.
Yeah, look, what you can do with a house, there's a few limited opportunities there. You can add a bedroom, you can add a bathroom, or you can maybe build an extra carport out the front, but, you know, there's
not a whole lot more that you can do. Granny, granny flat, but a lot of that, you know, there's a fair bit of cost involved, too, here.
A lot of this stuff we're talking about here, there's little to no cost. Um- That's exactly right ... so- Paperwork a lot of the time. Absolutely. All right. What are the three, the top three common mistakes that investors make when it comes to trying to manufacture value?
Look, I think the top three investor, investor mistakes, uh, number one would probably be buying something that's over-rented.
So in the intro there, we talked about that poor person who bought a property on a rent that was way too high, and the tenant just moved out Uh, the second mistake I would say is not understanding the cap rate of, or risk profile of a particular asset type or niche. Just for example, we went through that example before where if you pay 5% return or 5% cap rate for a property and it should have been 6%, that extra 1% on 5%, you're paying 20% too much.
Yep.
And the third risk I would say is not understanding vacancy risk, because one area you can get burnt in commercial is when you buy an asset and it becomes empty for one year. So you really need to talk to the current tenants. If you're buying a vacant property, make sure you can fill it pretty quickly, and that creates a really, really good opportunity.
I've got a friend of mine in Victoria... This is a really good idea. I just thought of this now. He's bought a big box retail investment, which is like a Bunnings or a Harvey Norman. He, he's a commercial property manager, and because he had a relationship with these big box, uh, businesses, he asked them where they're looking to expand.
He saw a site for sale. He couldn't afford to buy it, but one of his other clients had some money. So what he did was he said, "Okay, why don't you go... Client, why don't you go and buy this industrial land with this big empty shed on it, and I'll get my big box tenants to lease it for you?" And they made about $3 million in day one by buying that site because the commercial leasing agent had a relationship with two big box tenants.
Big site, like a big site. Mm-hmm. They made $3 million in one day by pre-leasing that site before it even settled, he- because he already had the tenants ready to go in. And that- And this is the opposite of the, the vacancy risk Yeah If you can find one that's already vacant and that the seller's hurting, if you've got a tenant ready to go in, that's, that risk creates an opportunity.
Well, there's a num- there's a
number of strategies that we've covered here that ticks... Like, that's the, the tenancy profile uplift as well. Um- Yeah.
Yeah, yeah, high profile- Mm ... long lease-
Mm ...
massive, massive rents.
Ticking all the boxes.
Yeah. He made $3 million in one day with that deal.
Wow. Wow.
Mm.
All right.
So current market opportunities, where are you currently seeing the best opportunities right now to manufacture value?
Look, there are, i- i- and I, I, I've said this a number of times, uh, as far as geographic areas, um, I can't find any value in the major- In cities ... metro cities. Mm-hmm. Um, it's all regional. Yep.
Um, and, uh, I think, um, that will continue into the near future. I just can't see any value in, on the Gold Coast, uh, Brisbane, Sydney, Melbourne. Look, if you're a super rich guy and your strategy is very, very low risk and you're happy buying something with a 4.5 to 5% rent with a big blue chip tenant, that's fine.
I'm not saying don't buy in a metro area, but if you're not, if you haven't got $100 million lying around and you, you wanna actually make a higher return, add some value to a property, um, the metro areas at the moment, I don't see a lot of value. Okay.
Mm. So best place at the moment, look rural. Y-
yeah, larger regional areas, I would say, not the little tiny towns.
Sure.
Yeah.
Although we have done some podcasts where you've made some very good money with deals- In the middle of nowhere ... in little tiny towns- Yeah ... when we do say that. Okay, final question. If someone is out there listening and they wanted to start increasing the value of a commercial property, what's the one first thing they should focus on?
How do we increase the rents? I mean, we, we went through the office example there where I, I put in a kitchenette, put in some LED lights and new carpets. Um, for a, uh, a shed, it might be a similar situation we talked about just before, add a mezzanine.
Mm-hmm.
Put in some LED lights. Maybe even some of those hot, smelly sheds don't even have an air conditioner.
Yeah. Put in a $2,000 air conditioner in the little office. For a retail shop, it just be, can be very expensive to do really nice fit-outs on a retail shop, so my tip there for investors would be, you spend the money doing it, because if you don't offer that incentive to a tenant, if the tenant has to spend all that money doing a fit-out, they're gonna want to sign a lease at a much lower rent.
Now, the downside of doing that is when you get that place valued, the valuer isn't gonna look at the fit-out cost. He's gonna look at your low rent that you've got on that property, and when you multiply it by a cap rate, it's gonna kill your valuation. So as a retail investor, my opinion would be you're better off finding that money, no matter how hard it is, you spend the money on the fit-out, but charge the tenant a much higher rent.
Because when it comes valuation time-
That's what matters ...
it's gonna push the value up big time, as opposed to being a bit tight and saying, "Oh, tenant, you pay for it-
But
I'll give you a lower, lower rent ... and I'll give you a really low rent." Yeah. It's gonna kill your valuation.
Great advice just in that alone.
Mm. Andrew, in another incredibly valuable episode, I think listeners now understand that commercial property isn't just about buying and waiting, like most people do with residential. It's about actively creating value through leasing, development, strategy, and, and problem-solving. I think, you know, I just asked what the one thing you should focus on.
You went through every, just about every asset class there and, and gave an example, but really, that one bit of advice is go and have a look at what you got- Mm ... and where you can ... where, what you could do to, to ma- increase the value of the property. Yeah,
increase
the income- Um, and there's- ... increase the tenant- We've talked about-
risk, yeah ...
all of that today. So look, if you have enjoyed this episode, please do, uh, make sure you, you hit subscribe there, share it with another investor, and, um, and let us know about topics you'd like us to, to cover next. You can go to Andrew's website, andrewwrightproperty.com.au. Sign up there to become part of the community.
Andrew's always happy to chat, so do reach out. He answers, uh, answers all of his, uh, emails, every one that comes in. So, um, Andrew, look, thanks once again. It's been one of my, um, my, my favorite episodes and, uh, it really does show, I think, one of your, I'm gonna call it your, your investment superpowers, and that is seeing opportunity and being, um, and being active rather than passive.
Thanks, Adam. It's been a great story too. I, I think people will learn a lot from this. Thank
you. Thanks very much. See you on the next episode. Yeah, man.
Thanks. Thanks for listening to the Andrew Right Property Podcast. This is all about building a community of like-minded investors who can share real-life stories, experiences, and collaborate with a view to helping each other.
Join us. Get in touch through the link in the show notes. I look forward to you joining me on the next episode