Don’t call me Carlo, certainly don’t call me Carlo Tito Mario or Carlos (I am originally from Italy after all), call me Bishop Carlo…just kidding! One of my commercial property investment properties has a religious group as a long-term tenant and the unit is used as a place of worship and religious congregation.
When a property broker introduced me to this investment in 2016 I immediately felt intrigued by this ‘out of the box’ opportunity ‘to buy a church’; I also had clearly stuck in my head the words of a billionaire property mentor of mine telling me that ‘he has a lot of churches as tenants’.
So how do you feel about that? And how should you approach such an opportunity if and when it presents itself?
When evaluating a deal, you should:
Understand and analyse the supply and demand fundamentals for the area
Evaluate the non-financial aspects of the proposed investment
Analyse its financial Terms and Conditions
Don’t be the uneducated investor that jumps into ‘running the numbers’ without having done the homework. Or be prepared to have some nasty surprises when it’s too late to deal with them without incurring unnecessary costs.
In the end I ended up purchasing the property for 26% below market value at an initial net yield of 14.6%. Not a bad deal, right? But how did I pull it off and what lessons can you adopt from it?
Secret # 1 – Make the Due Diligence Suspensive Condition your best friend
One secret that I have learnt doing small-scale commercial property deals is the strategic use of Suspensive Conditions and of a Due Diligence process; this is a great tool to take risk out of the investment equation. There were two key success factors to this deal:
Conducting a thorough Due Diligence on the tenant to mitigate the risk of non-rental payment. I went as far as receiving bank statements for the previous two years to ensure that rent had always been paid in full and on-time and indeed that proved to be the case
Securing a further three-year written Lease Agreement at Terms and Conditions acceptable to the Purchaser, being myself, as a suspensive condition to the deal. This meant that a reliable source of income was secured at least for the first three years of ownership without incurring any letting or tenant installation costs. Would you like that type of deal as well?
Secret #2 – Kiss a lot of frogs to find your prince
It was actually a different unit in the same Sectional Title scheme that initially caught my attention; but the Seller could not agree to a deal that would meet my minimum deal standard and I simply had to walk away from the potential deal with a smile on my face; it was only some two to three weeks later that this deal’s broker called me back. That’s when he alerted me to this further opportunity of the ‘church’, a deal that was not even on the open market. This is because I had made a genuine and serious offer on the previous property so he could see I was a professional operator. And do not underestimate how brokers can be a bit lazy and would rather do a quick deal with a professional buyer than wasting time with chancers.
Secret #3 – Follow the 1% Rule
The 1% rule is quite simple: If you want to achieve what only 1% of the people achieve, you must be prepared to do what only 1% of the people are prepared to do. And truth is that 99% of investors would shy away from having a religious group as a tenant. I’m not sure why…I love a tenant that looks after the place and even upgrades it at his or her own cost. Additionally, I love the fact that religious groups do not like to move as they are likely to unsettle their community and lose members, unlike a traditional corporate tenant that can just pack up their laptops and move overnight.
Secret #4 – Understand the circumstances of the Seller
You need to understand why the seller want to sell. In this specific case I discovered the seller required quick cash to complete a development project of theirs that had almost run out of funds; I was then able to trade my proposed quick solution for a purchase price at a significant discount to market value and achieve a win-win situation for the seller and I.
It feels great to report that this tenant has now been paying the rent ‘religiously’ for the last three years and we have just entered into a lease extension for another two years.
Ultimately the key to any property success is to empower yourself with practical property education and then to take consistent action to achieve your Property Vision. I look forward to seeing you at one of our Property Education Events.