Commercial Property Investment With High Yields Over 11%

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Helen Tarrant, will discuss her strategy for creating a foundation of cash flow before building on your portfolio. Find out where you can find great commercial property investment that yields over 11%; and uncover the strong mindset you need to balance growth or equity with cash flow.

Tarrant will also reveal why looking at property is like her son looking in a toy shop, how she had to educate herself on property through trial and error and why in committing to a commercial property, you need to stick to your guns throughout the whole process — even when it gets complicated.

‘What we do in our portfolios, we constantly balance growth or equity engineering and cash flow.’ — Helen Tarrant

Who is Helen Tarrant?

I am a commercial property investment speaker. I teach people commercial property on how to invest in property, the strategies behind the commercial property and how they can accelerate and grow their portfolio through investing in two to three properties — in commercial property. So that means that instead of buying 10 properties, you just need to buy two or three properties and retire on passive income.

In any given day, she is constantly mentoring students and reviewing property deals for them.

In every given day what I do is at the moment help and coach, mentor my students to make sure they are following the right strategies to grow their portfolio; so to make sure they’ve got the foundation properties in there that allow them to buy the next property and the one after. But apart from that, I also look at deals. So I look at property deals that come my way from different agents and other people out there who are looking at deals on my behalf.

And on behalf of my students, I analyse them. I go back to the agents, or people who bring me these deals, and tell them how else we can tweak and structure the deal so that it becomes a better deal, so that I can then take that better deal to my community.

Helen Tarrant’s Background Story

Born overseas, Tarrant came to Australia with her family at a young age as they searched for a new life.

I was born in Beijing, so I speak Mandarin, and I came to Australia at the age of seven and my mother was 35 with only $70 on her. And we started our life in Western Sydney in Cabramatta, living with my uncle. Growing up I moved all around Sydney and I moved schools nine times and eventually ended up on the North Shore.

A lot of times, in fact, we probably moved more than nine times but I changed schools nine times. So when we were growing up, my parents and my grandparents, my mother manufactured clothing so we were really pro-sweatshop boys. She had three industrial machines at home and we would all get on the machines.

So all these machines to meet deadlines would be paid like $2 to sew a shirt. They be sold for $150 and sometimes you know 250 orders or 500 orders and we just needed to get through that and then I would go to school. And then I realised at a very young age I needed to start working to support my family.

With a strong influence from her parents’ traditional Asian values, she chose to study law at university while working at a beauty salon.

Being Asian, you have only five professions that you can enter and I remember that even though my parents were not actually pronounced what degree they wanted me to do or tell me what they wanted me to, my father told me a story. He said one day I was on the train; he says, ‘I got on the train today and I had a really proud moment when an Asian girl about your age walked onto the train. She was carrying this pile of law books.’ And so I said to Dad, I said, ‘Well I guess I’m going to law school.’ So I ended up going to law school. I got into Commerce at Macquarie Uni and I asked around what is the best degree an Asian child can do to make your parents proud? And they said you have to do comm law, so I decided that’s what I was going to do — I was going to transfer under Common Law.

What year was that roughly?

Well I think back when I was the class graduate, the year was 1998. So it would have been just right after that — 1999 or 2000 I would have gone to uni.

I started off in Commerce and a couple of years later, I transferred in to a different degree, doing a Business/Law degree. It was five years full time, but it ended up taking me seven years to do it because while I was doing that, I had a beauty salon. So because my mother believed that in Australia, in order to survive you have to have a profession and a trade, so why have two kids when you can put all your hopes and dreams onto one or both of them?

I was at law school because I was thought I could implement some of the business principles into my salon. I realised though that if I was not really going to learn the trade, it was really hard to be as a backup source to my staff and other people in the business. So I learnt to do beauty, so I got qualified doing beauty around the salon — I grew the salon all while I was at law school.

Tarrant’s powerful work ethic spurred her to manage all this and more, starting her beauty business and then even expanding on it.

Back then I was 23 when I started the startup and the salon costed $25,000; I took over from a lady that was leaving to go interstate, like she was moving to Queensland because her boyfriend decided to go there for work, so she was selling out her salon. I had no idea about the actual running of a business, all I did was ask her to hire me someone who had a client already. It was to hire someone to be able to help with that business, to be able to do the work so I could work on the business. So that was the initial start of it and from there, I learnt beauty. I built my own clientele, built up the business and then expanded into another store and then another market store. So we ended up — in the space of a couple of years — doing two stores in a market store, except I was like working like seven days a week and like 20 hours a day.

Even before then, she had experience working after school.

I started work when I was 16, or 14 and nine months. But it was six days before you could start in the hospitality industry. So before then, when you’re 14 and I’m also legally at work, I started working in the library; so doing just a few hours a week. And then when I was 16 I ended up working at an Italian restaurant that was on my way home from school. So I only worked that out because the bus stopped right outside and there was a ‘Hire’ sign there. So I decided to go in there and apply for a job, so I could you know go to work literally after school and then the bus at home.

Despite the long hours and the intense work, Tarrant learnt a lot from her working and studying life that would see her through to future success.

The things you first see when you’re in your own business, you always think you’re drowning — I thought I was constantly drowning. I was thinking, ‘Oh my god, I’ve got to hold it on top of this stuff! How will I do it? And how will I manage the business? How will I implement all the different, strategic roads and everything as well?’ But the other thing was, you got really good with timing. One thing I got was time management and becoming a super efficient to do things. And also what I learnt through law school was that a system, if you knew how to do something and you apply a system, you could always pass your exams. And so that’s how I passed them. I never really had enough time to research and do essays and I knew everyone else did better than me at essays — but I always thought that I would do better than them at an exam, because I had a system to apply during the exam.

Taking A Different Approach

After three years of managing her salon business, she decided it was time for a break. This then led to an unexpected change.

I decided to hire some more staff and started to grow and for the first time in so many years, I decided to take a holiday. There was a manager in place and I actually left the business for a month and when I came back, she actually ended up taking my entire business! So from there, I kind of made a decision that I would either go and continue on and build a successful business, or I was going to close shop and never try again. So I decided that you know I was going to keep trying. I just couldn’t give up; there’s something in me that I just couldn’t give up.

But it what it required me to do was to take the last year of law school off, so I couldn’t finish my law degree (which is why it took seven years). But in the middle, I had to take a year off and I had to tell my father, which was one of the hardest things to do, to tell him that I couldn’t finish law school because I had to go and save my business. And my father said to me that he would regret it for the rest of his life if I didn’t finish law school.

Nothing like Asian parents to put those guilt trips on me! So I did. I spent a year rebuilding my business, I sold off the other two store businesses I had and I concentrated on building my primary business. I brought it back up to the same level and more actually, within 12 months, and then went back to law school to finish that degree.

Was there any way you could actually take legal action against the person who stole your business?

Well not really, because the thing is while you could I mean it’s a costless decision. If they decide to go with them and at the end of the day, I didn’t realise until after I started rebuilding some of the businesses, I started coming back on what she told them, that the business was closing down or I can do all these things in find out afterwards. So you really have to just believe in yourself and overcome that and you can continue to grow.

Buying Her First Property

Although Tarrant now specialises in commercial property investment, it didn’t start out in that area. Jumping into purchasing residential property in her mid-20s, she looked in several places for the cash flow to sustain her.

So like in my mid-twenties I bought a residential property, I think I was about 26 when I bought my residential property so that was just 10 years ago. So there I bought my first property — I couldn’t afford to buy in Sydney, or what was probably more stupid of me was that I didn’t want to buy of Sydney at the time because I was thinking I’d probably want to live there myself and I couldn’t. I didn’t feel comfortable investing there, so I thought, ‘Well maybe I should invest out of Sydney because what I was really looking for was cash flow.

And where I was looking at all these properties that were good, there were cheap properties in West Virginia. I just thought there was only one tenant left and that wasn’t going to be enough to really cover my repayments. I just wanted to make sure that my property was self-sustaining from day one. Being a beauty therapist and working for yourself, you realise that if something did happen you need to have that income. So for me, cashflow has always been a really, really important concept. I guess I’d been so busy that I guess I walked away from it. Well I’ve now got two occupied properties and I wanted to buy out of Sydney, so I thought I’d get by on the Central Coast. And the one thing that I thought was, ‘What did city people always want?’

I bought on the Central Coast and I ended up with a property that has water views and has dual occupancy. It is an old, rundown property — probably the worst property on the street had such a bad building report that even my solicitor told me that I have to walk away from it. But I guess I thought, ‘Well, I can’t afford to do any property now, but over time I will be able to. This area will grow. The main thing is I have two proper tenants with upstairs and downstairs in separate metres.

Then she found another great opportunity in a regional area, which provided her with the cash flow she was looking for.

I looked at cash flow and looked at what else I could buy in terms of this concept of cash flow. So when you go after and buy your first property, I stopped for a while for probably about three years or so because I was putting money into the property: I did some refurbishments for the property, had some bad tenants during that time. So it’s almost like you learn everything about the property after you own it. I was looking at other ways of getting cash flow and I would attend some of these seminars to find out about different strategies people were utilising. Then I thought, ‘Well the only way when I looked around was to actually go regional to buy property in regional areas that were high yielding.’

They gave you cash flow immediately, so that’s where my next property was. It was still residential but I also loved following the cash pretty much. And it was in Armidale so in NSW and the reason for that was after I finished my law degree and moved on, I got into a training college and did the Diploma of Beauty Therapy, owned by a registered training organisation. I decided I was going to do something for myself. I was actually willing to learn and study something that I actually wanted and that was Psychology. Because I felt like all the time while I was in a beauty therapy situation, I was doing counselling anyway half the time. It’s like if all those clinic hours could be counted, I would have had a degree anyway!

So I decided I was going to go and attempt to do a Psychology degree and they offered a very flexible degree, but it did require me to go out there once in a while. So I would go out to Armidale and stay there for a few days and do whatever else I’d need to do. I’d walk around — if you’re passionate about property, everywhere you look you look at potential deals. So I walked around and looked at property, ended up buying a property in Armidale and then end up buying another one near a daycare. So I bought two in a very little space of time and they were very, very cheap properties. There were $180,000 and $175,000. So very cheap; and the $180,000 property had a rental income of $333.30 a week and the $175,000 had under $175 a week in rent.

They covered themselves and gave me some cash flow. So I thought, ‘Well this is really great because it’s an area that I’m comfortable with, I know enough about.’ So that was sort of my residential journey up until that point.

Tarrant’s foray into commercial property investment happened in 2012 after the effects of the GFC had hit residential property. She realised that going commercial was the best way for her to attain cash flow.

At this time in 2012 I was in a unique time in the market. We’ve just gone through the GFC in 2008 and pretty much in 2009–2010 residential property was hit really badly, but that flow on effect didn’t affect commercial property till about 2012; so it was a delayed effect. So it was drying up in the market and not many people actually understood commercial and I was looking at the people that owned this type of property and the investors that would invest in this type of property. They happened to be your doctors, your lawyers, your accountants. So people who started out owning their own properties slide their own premise from their work and then build, buy maybe the one next door, the one in the building next to it and so on and so forth. And I thought, ‘Why would they choose to invest in something like that? They would be classified as what we would call your high net worth individuals.’

And so I started to look into it further and really realised that there was this cash flow component, that the property was sustaining itself, plus the tenant understood mostly off the type of tenant that would go to be there which is similar to them. They were going to be renting their properties out to accountants and lawyers and professionals who will be there for a long time. So then we had that stability. The one thing I didn’t get with my residential property was that my tenant will move in 12 months and then I had to re-tenant — I had to clean, I had to refurbish now and then. And I realised that they didn’t have to do that with commercial, that you give someone an office space, they do everything. A tenant comes in, the tenant stays for 5, 10, 20 years or so and then when they come back they give it back to you back in it’s normal state that you gave it to them. You get to start again.

So they take care of themselves and then I also realised that this is cash flow, so then I start to understand that if I was really looking for cash, for serious amounts of cash flow, then commercial property is really the way to get into it. The problem is that the commercial property industry is a bit of a secret industry. It’s like if you don’t ask, you don’t get and if you don’t own commercial property investments, people are not going to talk about it.

When she first began investing in the commercial side of property, she bought great premises near the CBD for $360,000 with a yield of 8.6%.

We bought a restaurant premises in Sydney. So I think like everyone, you first start out investing in anything you want to be local to you. We bought a property that was about 55 square metres in North Sydney on Mount Street and it was a Japanese restaurant. It was in a strip of other shops that had a cafe, had a bookshop, it was near Oporto and had an Aldi there. It only does a lunch tray, it only serviced the office workers there and the net yield on it was 8.6%.

In 2012, you could buy a one bedroom apartment for $300,000.

Doesn’t commercial property investments get as much capital growth as residential properties?

It depends on where you buy it — and this is the other myth that’s in the market, is that in commercial property capital growth is so often misunderstood and not talked about. But just to give you some examples of it, I know this is very much Sydney based because I am in Sydney and for listeners out there who are not, it’s unfortunate I don’t have an example to give them in different states at the moment. But somewhere like in Bella Vista here though, they had those little warehouse spaces in 2012, they have that business park. They were struggling to sell them at $500,000 — today those properties are worth $1.5 million.

There’s a couple of things that drive commercial property investment growth. It’s that the area gentrifiers and the more people move that into the area, the developers are going to go and build a residential development over a commercial development because they only build commercial developments where there is a demand.

And if there’s no demand for it, it doesn’t make sense to build a commercial development. So what you would have in an area like that is that there’s more pressure on people wanting to be in that area, who want to work in the local area, and therefore you have very little vacancies. And so if more people come into the area the property value actually goes up.

There have been several moments throughout Tarrant’s journey where she has learned from some unsavoury situations — like tenants growing marijuana in the backyard!

In terms of some of bad investment decisions or horror stories anyway. I really think of when I was in residential, when my tenant took a long, long time — it took her about 6 months. Actually Victor and I had a real problem with with her, as she was a single mother but her son was growing pot in the backyard. I didn’t know this until my gardener caught us up and said, ‘I just wanted to know, are you intentionally growing pot in your backyard? You could help yourself to some quality.’

This event turned her investment property into an expensive process that cost her thousands of dollars.

This was near West Gosford Park. So I thought I really should try to evict that tenant, so I had to go to the tribunal and go through that whole process. And it was expensive! Afterwards I basically had about about $12,000 in repairs to do on the property.

With no landlords insurance to fall back on, Tarrant learned a very important lesson.

I just basically thought, ‘Oh well,’ you know at the time I thought they were all good tenants up till the end. So that was a mistake I learnt if you don’t have those insurances. You need to put those shows in some places. That was one of the lessons I learned in residential and as far as commercial goes, I think that so far I haven’t had any major issues in my commercial property journey. And when I say our, I mean my husband. But we’ve certainly had times where our tenants don’t adhere to the lease, they try to vary the lease and I think they try to test where you are in this, how flexible you are.

The most amazing a-ha moment for her was when she discovered the power of commercial property investing, when cash flow was direct debited into her account each month!

I think my biggest story was the the first commercial property investment purchase, because for me there were so many unknowns, so many pieces that hadn’t fallen into place. But all I did was I knew that on a gut feeling that that property was going to work. But more than anything else was the a-ha moment that came after you buy the property, because I had almost done it knowing only partially the fact I knew the rent, I knew who my tenants were, I knew the lease, obviously looked at the contract; but I didn’t know what the future was going to hold for me.

I didn’t know whether the tenant was going to do the five years or whether they were going to just get up and leave in two years to the best of my guesstimate. I knew what could turn out but buying that property and then realising that it’s so much easier than that, that you don’t actually have any issues with it, the tenant just goes about their business. They direct deposit the money into your account every month, you send them an invoice, you pay the bank and then you’ve got this cash flow to keep that you don’t have to budget. You know you might get an expensive Strata this month or that you have to set aside because you have to pay rates. Now that’s real, that money was the thing that I think in terms of really setting yourself free in the mindset and everything else.

So for me, we could get roughed up about potentially as much as we’d like. But for me I needed to see some evidence — and having that cold, hard cash at the end of the day in your bank account was the moment that you go, ‘Oh, it’s actually a lot easier than what people make it out to be.’

As a commercial investor, Tarrant also finds it handy to have property managers to take care of her properties that are further out of reach.

We definitely have property managers. Most of them if they are outside of the city, we get others to manage it for us because it’s just too hard for us in terms of location and distance.

Is common to have a property manager for commercial properties as well.

It just depends on the type of properties. So if you have a couple of different tenants and you have multiple tenants, then you want someone else to manage that property for you. But if you’ve only got one tenant in there and the tenants pay or the outgoings and all you have to do is send them an invoice a month, you can do it yourself.

And she’s a seasoned property investor now.

We have now close to probably 20 commercial properties and they are located all across Australia. I know it’s probably more than that, but just last year alone we bought about eight commercial properties.

So we tend to go through this frenzy where we buy, buy, buy and then we’re now in this phase where we’re not buying for the next six to nine months because we’re fixing up. We’ve got projects, all these properties and so we’ve leveraged two. Now we’re just fixing up, we’re returning, we’re doing all that refurbishment.

Her personal preference for commercial real estate is based on two reasons — low maintenance work and great returns.

A lot of it is to do with it being a lot easier to run and a lot of it is to do with the long term; the tenants are there for the long term. They are going to be taking care of the property, so in a sense then we don’t have to worry whether they’re going to trash the property or not.

Properties That Put More Money In Your Pocket

Initially, Tarrant made the choice to invest in property rather than shares due to tangibility. Who can argue with that? Setting out on this journey for property, she had very limited resources to help her.

I never really understood shares, but I understood property. And the other thing is also coming from an Asian background, owning property just seems like it’s part of our culture or both. It’s like there’s a need to have land. So because I didn’t understand enough about shares to be able to sit at a computer and dissect everything, property was tangible for me — and I like looking at property, I like viewing property. In fact, it’s kind of an addictive thing; every time I go to a new suburb I look at all the commercial properties and if we go on holidays, even now, I said to my husband, ‘Can we just go down the road and look at this? Once open I just set it up with the agent to go see this.’ I go see this. It was so crazy last year on Mother’s Day, I was driving around with like my son in the back and all he wanted to do was go to a toy shop and we were at home on the Sunshine Coast. And I was at a business party looking up property and I just said, ‘Wait, let me see these two first and then we’ll go to the toy shop.’

‘The commercial property industry is a bit of a secret industry. It’s like if you don’t ask, you don’t get and if you don’t own commercial property, people are not going to talk about it.’ - Helen Tarrant

Setting out on this journey for property, she had very limited resources to help her.

I have to say we’re original, so I haven’t been to a property boot camp, haven’t attended a property course; so everything I’ve learned has been through books. I’ve read about the concept, the residential and all the principles about it in attendance with this introduction seminars. But in terms of commercial where I try to find a lot of books on it, they’re all from the States, or they’ve be written like 10 years ago. So there’s nothing, like back when we first started five years ago, six years ago, there was nothing on the market so everything was trial and error. We learned everything from scratch.

We didn’t invent commercial property. But these theories became more apparent as you accumulate your portfolio.

In terms of books on commercial property, Tarrant says it’s difficult to find those that can be applied to the Australian market.

I’ve read some books on Dr. Roo, I think he writes for the Rich Dad series and he used to actually talk about commercial property in his books and he had a whole range of books on it, but again that was about 10 years ago. So not everything is applicable today and also, I find that when it’s applicable it’s to Americans. It’s a little bit different.

The best advice she has ever received is to stick to your guns throughout the process of investing, including when times get tough.

In terms of property, I guess people have told me that you have to actually buy and hold it, but just to stick out the process of it. So I’ll hold it forever, but stick out the process that it’s going to take to make that property a good property, because not every commercial transaction could turn out to be brilliant from day one. But some of them will take some work, or take you to maybe put a new tenant in there, refurbish, or tweak the lease.

And it may seem like a really, really big headache for six months and you might think it never ends. But ultimately, when you work through that process what comes out at the other end is a really great property that you’re going to have for the next 10 or 20 years. And a lot of people quit halfway through that process because they might not be able to put it commercial all together, because it just becomes so complicated a few weeks into it.

Tarrant has built her personal portfolio to over 20 properties using a strategy to maintain cash flow and engineer growth.

One of the things that you can do with the excess cash flow you have on commercial, so all the commercial properties you can get up to five years interest only depending on the type of property. So we would go with an interest only loan because then we have got the cash flow to be able to piggy back and to buy the next property. But then if you focus on cash, find your first property and you create a really good foundation so that you’ve got enough cash flow in let’s say in your area in your portfolio. What you can do is use that cash flow to support a property that isn’t so cash flow strong, but may have really great growth potential. Now almost all growth potential commercial property can be engineered, or are engineered, and so you could buy property in the city CBD and grow organically, but that will just grow each year just like housing.

But if you want substantial growth where you’re going to say, ‘I’m going to cash out within the space of 12 months, $200,000 or $300,000,’ then you’re going to have to engineer that growth. But you won’t be able to engineer that growth if you don’t already have a cash flow base. So if you can use a cash flow base on the first one or two properties to help you buy a property that may be run down, that may be missing a few tenants, or need a coat of paint, or need something to be extended at the back while that cash flow is going to help you with servicing that loan. But it’s also going to help you to make sure the property portfolio is neutral and nothing comes out of your own pocket, except for when you’re doing these capital works. So it’s almost like it’s helping you service the loan on the next property as you engineer the growth.

Banks loan such a high ratio, usually residential market in the past to get anything between 95% and 100%. But for commercial it’s much lower, is that still true in this market?

Now with these current conditions, if you go back to what the banks — and the banks are very, very cautious about lending 90% — you know they’re scaling that back to 80% because they are changing lenders mortgage insurance to be further up. Now you won’t see that in commercial, you can get up to 80% LVR if you are self-employed, so you could tap into a low doc loan if you are self employed and you pay wages to employees, you’ll get as high as 75%. So 75% LVR, but you can do 100% finance if you have a property that has equity in it and you cannot actually tap into that equity because of your serviceability.

For example, if you bought a property and this property is residential and is negative and you don’t have the income to service it or be able to refinance or take out say $300,000 as a deposit; what you can do is you can find a commercial property that has a high enough yield, high enough return, that will be able to service a pulling out of that equity as a deposit. Plus the commercial loan. So essentially, you could bind the two together one in a residential loan and the other one in a commercial. I thought of separating the loans but that meant that it’s literally almost 100% finance for you to pull it out of that property.

That’s the analogy behind it and that’s the reason that it has to be some type of property criteria that would fit that. But you could definitely do that. I’ve had quite a few students who have done that, because in their own normal wages and everything just cannot tap into that service, but they cannot service any more borrowing.

For many of those investors who are concerned about finance, Tarrant has discovered a way to target properties that will produce a passive income as a foundation for her portfolio.

You’ll start off with the first property that you buy, if you look at what’s in your portfolio that’s missing. So for example if you’ve got residential in your portfolio, you might be missing the cash flow component. You might have a lot of growth in one property but that probably might be negative, so what you need to do is the first strategy is actually get your property back to neutral. You cannot do anything else or make it move forward in your portfolio with the bank until that property portfolio becomes neutral. That’s the first thing. And then you move to the cash flow stage, where there’s excess cash from your property.

So if for example you were starting and you had no investments, then the first property you still should be focusing on is cash flow. Because if your property’s going to give you $20,000 extra in passive income, shortly after the mortgage interest is repaid and you’re earning $80,000 a year, essentially your income is $100,000 a year; yet your borrowing capacity is more now. But what essentially is that? $20,000 can support a property that is not producing any income. So what you could do is you can say save up, let’s say you could save up for the next property with the cash flow. You might save two or three years instead of buying the first property which was quite big and now you’re getting the passive income. I’ve got to save up a couple of years with my own savings, this is the cash flow from here. I essentially have two incomes in my savings every single year and I’m actually able to buy again.

Then she looks for a second property that needs a bit of work.

It might be two tenants in this property, but I might only get it when it only has one tenant in it. So one side is to break it down, but with one tenant it might still be giving me a return of 4% or 5%, which covers my interest repayments. So the property is essentially neutral, but I’ve got the $20,000 that’s coming from my first property to be able to support this property. So I’m not actually negative out of my own portfolio, I’m not taking anything out of there.

What I’m doing, my $20,000 job is to support the mortgage repayments along with 4–5% that my second property’s earning. And then all I want to do is use that money, access that cash, or start doing some minor refurbishments on the property that’s vacant. So the ones that are vacant are normally commercial. We don’t do any structural work to start with, we start with very simple things like recarpeting, paint and lighting and at most, we put in an air conditioning. Those are not expensive things. We’re not putting kitchens in there, we’re not doing the bathroom, so they’re not expensive things. Then we get a tenant in there.

The aim is we get a tenant in there and then all of a sudden, now we have two properties that are high yielding properties. The second property that’s gone from 4–5% return is now about 8%. So what will happen with that is now I’ve got excess income, but the property that I bought that was originally 4 or 5% the auty because it was partially vacant, I would have bought it cheaper than when it was fully tenanted. Just the same analogy you can apply in residential, you would apply to commercial, use it for any property that is run down or needs refurbishing and you’re going to be buying cheaper.

So you obviously bought that cheaper, which means now you put a tenant in, the cash position has changed. You could take that back to the bank and get the bank to revalue it.

What we do in our portfolios, we constantly balance growth or equity engineering and cash flow.

Similar to a strategy that you might use for residential property, Tarrant takes advantage of the higher yields that commercial property provides. She also admits that it’s easier to manufacture growth with commercial investments.

The terms of the tenant, because once you put a tenant in there, they might be there over three years or five years or longer and so you’re doing the work once. And it’s like going through that process, you know the process might be hard for six months, really, really hard for nine months. But ultimately what you will have is a property that’s got two tenants and the leases are staggered, so no one is going to have a full vacancy which means you’ll always have your mortgage covered. And your tenants have paid their proportion of the property. So there’s no money out of your own pocket.

But one of the drawbacks she has faced in her experience is not being 100% sure what the agent is telling her is true or not, especially with properties she purchased from interstate.

Looking at properties, one of the things that I guess was the biggest challenge is that you can never quite know if the agent is telling you the right thing, or know if that’s the correct thing. So you really have to do the due diligence on your own. Especially if the challenges have been doing deals remotely, so I’m in Sydney if I want to do it in North Queensland I have no idea about where this property is located.

You could tell me it’s in the middle of an artillery road and it’s really, really great. It’s got so many cars passing by, but I’ve never seen it. I can use Google Maps, it could tell me where I am, but it’s not going to be able to give me the same detail as sort of going in there and seeing it. So that’s one of the challenges and then really, to do more extensive due diligence so you can go out there and make sure that what you’re really getting is the real deal.

The drive behind Tarrant to build her portfolio comes from what she describes as an addiction to commercial property.

We’re buying property, we’re addicted to commercial property, you don’t really need that much but we’re just addicted. And also for me, I feel like I can only teach the strategies I’ve done here and I want to always do new strategies and try new areas and if I go in there and I can make it work, then everyone else can make it work. So that’s been one of the reasons we’ve grown it. But the other reason behind it is that you know how it is, but once you get good at it, it’s like a developer will always go and develop because they become good at it, it’s something that you just know what to do.

So for example, our latest recent purchase last year, one of the reasons purchased last year was we bought a property in a bit of a mining town in regional New South Wales. It wouldn’t be something that I would advise a student to go into as a first property, but because we’ve got a portfolio we could sustain something that’s in a mining town because it’s high risk, but what we get out of that is that we get it 11% yielding property. So the property is massive, massive amounts of cash flow. If you get your lending from the bank at 4.5–5%, it’s massive amounts of cash. But what we’ve done is we’ve come up with it, we talked to the bank at the same time a property that was fully bakit. So the property was producing no income so there was one property that’s in choric hurry on duty, any income which is 20 km out of Newcastle.

But because that property’s in an area that is growing, we wanted to buy a vacant property because it was cheaper to buy that than it is a tenanted property. But the property also needed some refurbishments, but in terms of getting the loan I’ve been able to be self supporting the massive cash from the first property. Less than 11% is supporting the property that’s vacant. So we could take these two properties to the bank and the bank can give us an approved loan based on the cash flow. These two properties are one property supporting the other.

And she never ceases to get a thrill out of the beauty of investing in commercial.

Then with that property, this settled in August last year both properties; so the property settled in August last year. We’ve done refurbishments to it, we got a tenant in there, we’ve got an ATM in there. Then the storm came through it and took off the roof but thank God we had insurance. Thank God! You know, $85,000 of work and over $250,000. We really don’t have to pay for refurbishment at the back of the building because the roof took off and as a result of it, they had to refurbish the back of the building. So we’re getting a new kitchen and we’re getting all of that area done.

So when we bought that particular property, it was a 3 tenant property. So you have two shop fronts and residential at the back end. And then and then we’ve put in an ATM and we’ve put a tenant in there already, so we’ve got one of the commercial businesses that was wanting to be tenants, but they thought when the storm came through the work had been halted what with workers there. But the great thing is at the back, we didn’t need to refurbish the residential because it’s due to the storm the roof coming off the back of it will be refurbished and then we are going to aim to convert that back into a commercial property premise. Because one of the great things about it converting from residential to commercial is that you sort of get $200 gross where you have to pay your proportion of the outgoings. We could charge maybe $250 or $300 net and have the tenant pay for the outgoings.

So where can you find such great commercial properties like those in Tarrant’s portfolio?

You can go to websites like RealCommercial or Commercial View. So Real Commercial is run by realestate.com; Commercial View is run by Domain. So there are two large commercial property websites. The other thing is building a relationship with agents because a lot of deals don’t hit realestate.com, don’t hit Commercial View, because agents are hitting their own databases with these properties, or they’re calling people who they know can do deals.

So it does obviously happen in commercial as well to be able to get those deals out to the buyers already?

Absolutely. At the end of the day, commercial property is a business deal and an agent is there to facilitate that. So he wants to give it to the best person that has the best amount of ability to buy.

A personal habit that Tarrant attributes to her success in commercial property is to always give a project a solid attempt.

I basically I think a habit of mine has just been don’t over think about things and just give things a go. Like I wake up in the morning and I just think you know, ‘If this deal can be worked out, we’re just going to give it a go.’ You never ask a silly question, of course it’s always silly questions you can ask, but in terms of some things that you can do in commercial property you can’t do in residential, terms of negotiations and dropping the price. And if you don’t ask you don’t get. And sometimes I just go, ‘Whoa. Even if this seems so ridiculous, let’s just give it a go.’ You just never know. The worst thing that could happen is you get a rejection.

Or rejection can also be as simple as knowing you can just move forward. That’s the thing, it’s also if you don’t turn the stone you won’t know what’s underneath. So it’s the same principle behind every stone unturned.

Just take the emotion out of it, take the emotion out of it and look at the figures and look if that figure is acceptable to you.

So if she were to meet herself from 10 years ago, what would she say?

I probably would have said to her, ‘Don’t stop trying, just keep going.’

In the next five years, Tarrant is excited about getting her hands into new, larger-scale projects and continuing to educate others on the strategy she has effectively used to create her wealth.

I think what I’m really excited about is actually creating more awareness in the market of commercial property investment and leading the market in commercial property education and actually helping others buy more commercial properties. So actually seeing my strategies duplicated in the market, in terms of a personal thing, we’ve done the whole range of commercial property. What we would probably look at doing next is look at buying a shopping centre. So going to the next level up where you’re buying a shopping centre where there are so many other pieces to be put together.

Originally published at https://propertyinvestory.com.au on July 30, 2018.