Updated: Dec 22, 2020
It's definitely safe to say, that Simon Pressley from Propertyology knows what he is talking about.
I’ve been following his work for the last five years and I have lost count with how many correct predictions he has made, even when his opinion is in complete contrast with the rest of property community.
I was lucky enough to interview Simon twice on the show this year, and when he talks I Listen!
Simon is predicting the biggest ever residential rental boom in living memory.
If you live in Melbourne or Sydney and you’re not a property nerd like me, you’re probably blissfully unaware that nationwide except for Mebourne or Sydney there is a residential property boom happening right now.
Once again, this was predicted by Simon when I interview him back in Episode 17.
The episode was titled Property Boom Before Christmas. Well, I guess you were right again Simon but, im really not surprised. I have come to learn that Simon Says is not just a game for kids, but it’s a game for property investors too.
So what does this have to do with Commercial property? Well a lot actually, Simon has predicted that the entire landscape of how we live is changing due to the coronavirus or the Germ as he likes to call it.
The Working From Home movement is real and its creating an opportunity for Commercial investors outside of the capital cities to snag all sorts of great deals in medium to small local communities where people are flocking too.
Industrial warehousing for online business is the obvious choice right now but, every man and his dog knows it. So if you do decide to enter that space, expect a lot of competition.
The truly great investors of our time all say one consistent thing and that’s, “Don’t follow the herd”.
Using Simon’s research and his predictions on the biggest ever rental boom, does this mean residential blocks of units will come back into play, for the cash flow first investor?
When I say blocks of units I’m referring to your duplex, triplex or even quadplex on a single title.
These types of assets were very popular back in the day for cash flow first investors and if rents are on the rise and the actual NET cash flow can hover around 6-7% I can see a resurgence of demand for this type of asset.
I also see a huge opportunity in run down Permanent Stay Caravan Parks that have development potential.
These types of assets have a residential flavour but are valued using the income it produces.
This means that a $5 increase to each resident can have a huge impact to the overall value when done at scale.
If you own a Caravan Park with 50 Lots and they all pay $150 per week. And the average cap rate in the area for Caravan Parks is 10% then you increase the weekly rent by $5 each.
Now assuming you have zero vacancy that equals an increase in your yearly rental income of $13,000. Pretty good right!
But being that a Caravan park is a commercial asset, and its value is derived from the rental income that means you have increased the value of that asset by $130,000. (Now there are a few other factors that come into play when purchasing a Caravan Park like development potential and locitons is key so make sure you do your research and speak to a lot of tourisum industry professionals before jumping in and for this example we will pretend you already own the park.
$5 increase x $50 Lots = $250 increase per week
$250 x 52 weeks = $13,000 of increased rental income
Increased rental income of $13,000 / 0.10% Cap Rate = $130,000 of increased value!
This is called forced appreciation and it’s how professional Commercial Property investors recycle their capital out of their deals in short periods of time.
They don’t just sit around and hope and pray that the market goes up so they can move onto the next deal. They go into the deal with a clear value add strategy which doesn’t rely on market forces.
But if Simon is right, and I’m going to go on the record and back him, then that rental increase might be a lot more than just $5 for each Lot.
As the saying goes “A rising tide lifts all ships”. Even the old ones in needs of repair, as long as they can still float.
The best thing is, is these type of assets are everywhere and majority of them are run by Mum & Dad operators who are tired and just want to retire.
But no one seems to be looking at this space because it’s not easy to run a Caravan Park as a passive investment. You are buying a business which requires a lot of work and employees if you want to do it at scale.
If you couple the rental boom with increased demand and little to no competition to buy these assets, I call that a Big Opportunity!
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Managing Director - Develop a Life
Host & Creator of The Commercial Property Show Australia