Chris Lang is the CEO of Property Made Easy and Property Edge Australia, whereby he helps buyers to purchase commercial property or make the transition from residential to commercial for its greater return and prepares education-based material for subscribers such as online courses. With forty-five years in the business under his belt, Lang started his journey in residential property and property management, during which he sold a 51-million dollar property for a fee of $800,000.
Join us as we find out about Chris Lang's High Return Filter app which compares a property against investment objectives and buying criteria, his secret technique to avoid competing with other people for properties and how he does the opposite of what others do as part of his property investing technique and much more, all in this episode of Property Investory
Resources and Links:
[00:28:05] So it's interesting in real estate to be successful, you have to be a finder and a finisher...Unless you can list the property or ultimately package the deal up to sell it, you're not adding much value to the transaction.
This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.
I’m Tyrone Shum and in this episode we’re speaking with Chris Lang, who has a reasonable pedigree in Commercial Property. He is an Economist ... a Valuer, and also ... author of
7 books on Commercial Property Investing. We'll learn his secret property investing technique and how he managed to sell a 51-million-dollar shopping centre, and much much more!
**End intro music**
**Start background music**
Chris Lang is the CEO of Commercial Property Made Easy and Property Edge Australia. He tells us a bit about what he does on any given day.
[00:00:24] I help investors purchase commercial property and most of my time is spent in preparing education based material for subscribers when I'm not helping them buy property and that includes regular podcasts and articles I study. Training courses plus answering their number one questions about commercial property.
[00:01:10] Most of it is in preparing that material to educate investors because I find that they need the background knowledge that we can sensibly help them in acquiring the property.
[00:01:30] A lot of them are making the transition from residential to commercial and the reason for that basically is that commercial property provides you with a net return of somewhere between five and three quarter to six and a half maybe seven
[00:01:51] if you're lucky on your equity. Whereas residential currently you might get a 5 percent gross return but after your outgoings it's probably more like two and a half, three if you're lucky. So as I said the main activity is in helping people acquire package up, find the finance for and look after commercial property. But the process is through the education based training up of it.
To help people get from a residential property investment to a commercial one, Lang has developed various online courses with lots of free material. He also helps people to source and buy properties.
[00:02:48] I've got several courses online home study courses, my various Web sites and one of them is commercial propertymadeeasy.com.
[00:03:04] There's a whole host of free material. So I'm not I'm not simply looking for people to lock into a pay course. If they want to, that's fine, but they can dip your toe in the water and watch a lot of videos and podcasts and blogs and other material for which there is no charge so that they can get a comfort level that they are happy to move to the next next stage and, as I said, it's interesting some people come
[00:03:44] on board looking to learn all they can to do it all by themselves. But the interesting thing is that the more they learn the more they realize that commercial property, while it's considerably more profitable than residential, it does have some complexities and they generally need someone to hold their hand.
[00:04:11] But I'll have as little or as much involvement in the purchase activity as they want.
When purchasing commercial property, Lang identifies the key struggle investors face and how his online material helps potential buyers find the right property.
[00:05:00] Probably identifying the right property and most people think that they can simply go on the Internet and find a property and take it from there. But you have to be able to quickly assess the property and write offs. And that's something I would do intuitively
[00:05:28] having been in the game forty five odd years. But I found that a lot of investors were finding that hard just whether it should be on their short list or not.
[00:05:37] So what I've developed is an app called high return filter. And again if you go to my website you can download that there's no cost for it. You get it on the app.
[00:05:54] And what that does is that it provides you with a basis to write a property against the various investment objectives and your buying criteria.
[00:06:11] And I used to do that in a matrix on an Excel spreadsheet but now as I said I've developed into apps so literally in about three or four minutes you can either sit in front of the property or look at it on the Internet or from the information memorandum the agents provide and then you can give it a rating out of 100.
[00:06:31] And you know my rule of thumb is if it doesn't get 70 percent or better it shouldn't get on your on your shortlist. So that's one of the tools I use.
Lang shares with us his secret technique to avoid competing with other people for properties.
[00:06:42] The interesting thing is that most of my investors are what I would affectionately call wealthy amateurs. They have plenty of funds but not a great depth of knowledge in commercial property. And what I do is I don't like to buy property either at auction or with an information so I get an expression of interest campaign.
[00:07:13] Because you're then competing with everybody else.
[00:07:15] And so what I've done is set up a network of agents and the junior agents in the larger firms because they're the ones closest to the deals so that I get to see the properties before anybody else. Because what people don't understand is that when a property is leased, an estate developer has a strata office and the agent finds a tenant. Now at the initial point they reach what's called a hedge of agreement where it's all set out in considerable detail but as the commercial terms of the deal that has to be documented into a lease and that can take today anywhere from two weeks to six weeks before its finally documented. Now until it is released and executed in exchange, that agent can't go to the marketplace. So therefore I have a window of opportunity where the agent called a nation of the relationship they will as soon as can head to the great military place, shoot that to me and say, “Do you have a client that it might shoot?” At the every moment I might not but invariably I will have someone is looking for that type of property and so we can reach agreement in that period while a lease has been documented to purchase the property subject to the lease being executed in the form of the heads of agreement. So it means that we're not competing with everybody else and you need to think like a selling agent. Yes, the firm that they represent would like to go to auction or go to an expression of interest campaign with all the advertising, but as far as the junior agent is concerned all I want to do is to sell the property, bank the money and move on to the next deal. So I guess my approach is if I can make them look good in front of their boss and their client well I'm going to get more opportunities brought to me by them to talk to my clients about.
Lang tells us a little bit about his early years, including the kind of jobs he had as a teenager and what he studied at university.
[00:10:56] I used to have jobs during the Christmas holidays.
[00:11:10] I think I worked at a soft soft drink bottling factory one Christmas and a plant nursery and I can't remember what else it was, they were just for two or three months over the holiday period.
[00:10:00] Well I grew up in Melbourne, attended Melbourne Grammar and then went on to study economics at Monash University. [00:10:42] I studied it for three years.
Lang shares with us how he got into property investment, what first planted the seed to make him want to go into real estate in 1970.
[00:11:52] It was interesting, even my grandfather started the real estate firm Gardener Lane back in nineteen thirteen. There was no pressure from my father who was managing director at the time permitted to join the firm. In fact my original desire was to become a doctor because I contracted polio when I was five and I'm blessed to recover from it. So I guess I just wanted to give back in that area. However in my final year of school I realized that I was going to be struggling to get into medicine. So I repeated year 12 and change to the humanities and sort of managed to scrape into the economics course. But it wasn't till I'd finished my second year at Monash that I realised that the arena in which I help people really didn't matter. So it was only then that I realised that and decided to make a career in real estate.
In working for his father, Lang came up against quite a few struggles with the other staff.
[00:13:29] There are certain advantages in working for your father. But I can tell you there are a lot of disadvantages.
[00:13:46] To the rest of the staff to appear average, you've got to do better than average.
[00:13:55] And once you start showing them up they start to get annoyed. So it's a two edged sword.
[00:14:02] So you know it was an interesting period.
[00:14:08] I'm an inquisitive person by nature. I want to find out how things work and you know some of the older members of the firm, older in age but older in mindset who...it was unusual at that time to have a degree in real estate. You didn't need it though, you went up to RMIT and got a diploma in real estate.
[00:14:38] So I still had to go and do that after I'd finished economics to get a real estate licence and a valuation licence. But the level of education wasn't that high. So in some respects I was seen as a bit of a threat which you know that wasn't what I set out to try. I mean I just wanted to learn as much as I could as fast as I could. And apparently asking questions doesn't endear you to people.
Back in 1970, the real estate scene was a little different and was more about networking rather than individual and direct contact.
[00:15:38] It has changed in that back then it was very much who knew. These days it's more structuring how to use the internet and word marketing. I mean for example
[00:16:16] I ask people how does selling real estate—whether it's residential or commercial—how does that differ fundamentally from any other form of selling. And most people struggle with that and I'm talking about whether it's photocopiers or cars or munitions or boats or airplanes. It's got nothing to do with size. The basic difference is that in real estate you have to make two sales for every transaction: you have to make one sale to get it on the books. Then you have to make another sale to get it off the books. If you're selling photocopiers or cars, you run out of stock, you just ring up head office and they send you some more. But you can't do that in real estate. You've got to do a deal with a vendor to retain you, to sell it, and then you've got to do another deal with the purchaser just to get rid of it.
**PROPERTY INVESTING JOURNEY**
Instead of talking to the vendor or through their agent first, Lang's technique allows him to get to the purchaser first.
[00:17:26] I've got to go get the purchaser to retain me to then go and talk to a vendor or through their agent to actually find a profit. So I just do it in reverse, so I reasoned that if I could automate one half of the transaction that would have to make my life easier. So I mean I went through the whole agency thing but now I act as what is now known as a buyer's advocate. Although when I started in 1990 I was doing that but there wasn't the name for it. So what I've done with my website is just set it up so that people can arrive there and educate themselves to the point where when they're ready they call me. The first conversation is what do you do Chris. They know what I do because they've been getting my email, my podcast and my blogs and it might be three weeks, maybe three months, could be three years for some people. So the first conversation is I've got half a million a million two million to invest, what can we buy? So that's where it's probably changed.
Lang started his journey in residential property before moving onto office leasing and property management, and eventually ended up working for buyers to help them purchase property.
[00:20:19] I did the residential stage and then came back into the city office and then got into commercial sales.
[00:19:03] We had a CBD office and two residential offices but I was initially based in the CBD, in Melbourne's CBD, and worked my way through office leasing.
[00:19:28] Then into property management and during that time doing the odd valuation, not much, I got my licence, and then probably after about 10 years I had to go get some experience in the residential offices, so I spent a three or four year stint over there int hose two offices.
[00:20:43] I was in commercial sales until the property crash in 89 when I realized there was plenty of properties for sale but no buyers.
[00:20:58] So made the switch to act for buyers to help them. I mean I had plenty of money but they were confused. The market was in disarray. I had to help them analyze and sift the good properties from the bad.
Due to an overdraft belonging to his father's real estate company, Lang had to come up with creative solutions and strategies to try and get rid of that debt.
[00:21:27] I've had to reinvent myself. I remember when I was 37, it was in 1984 and within about 20 minutes I found myself managing director of Gardener Lane, that was the sales agency side. And well what happened is that Bob Hawke had come into power and he changed the superannuation laws.
[00:22:13] I don't think my father really listened fully to what he was saying but literally within about an hour I suppose it was I found myself with a couple of meetings and I was now in charge of forty people, the CBD office and two suburban residential offices, but the problem was that my father was a past president of the institute and he'd been asked to represent the real estate institute on the State Government's committee to redraft the estate agents act. Now,
[00:22:49] Unfortunately that took him away from the office for two days a week for a year. You can imagine the impact it had on a company to be without their MD, the main money winner.
[00:23:03] But two days away for a year and half I quickly discovered in the next two weeks after suddenly being now MD. But we had an overdraft of half a million dollars and it was growing at fifteen thousand dollars a month.
[00:23:22] Now back in 1984 that was a pretty scary state to be in and you know I had an economics degree but what I really needed was an MBA to really cope with the situation.
[00:23:37] And you know if I'd had proper training for this I would have probably started slashing costs and laying off staff but my initial response was to look for ways to improve the revenue, but to attract the necessary level of income meant that we need to be like a national firm like CBRE Judge Lang Knight Frankel Collier's. And that's when I saw that Max Ryan was looking to build his Sydney and Brisbane commercial network for Ryan and Horne, so I approach Max on the basis of I would tip the commercial side of Gardiner and Lang into Ryan Horne but with no equity or management control, and in return I offered to provide him with offices in Adelaide, Perth, Darwin and Tokyo where we had affiliations with some other agencies. So next I was able to do in six months what he thought would probably take two years to achieve. Now, within two months of this new arrangement we were appointed to handle the sale of Brandon Park shopping centre near Monash University which I managed to sell for fifty one million dollars, now you can appreciate back in 1984
[00:25:08] That was a pretty big deal.
[00:25:12] Our fee was around 800000 dollars, so as a result of just under four months and one deal we've managed to completely wipe out our overdraft, so you know I guess the takeaway there was realizing my ability to think through complex situations and just come up with a creative solution.
Lang goes into the details of how he sold this 51-million-dollar property, from the struggles he encountered to who he finally sold it to.
[00:25:58] After I'd done the deal with Max Ryan we were now part of a 200 office network Australia wide, so it meant we had the reach and capability of which we could...the perception was we could compete with the major international firms that were giving the bigger deals in Australia. Now having listed the property, I left it to the sales team, I mean I was still having to run a firm.
[00:26:38] I had to take myself out of the sale side of things. They were holding inspections of their property—as you can imagine, there's not a lot of buyers for that sort of property. It's a pocket handkerchief market. So given the size, so they held inspections and after about a month the vendor will rightly was getting a bit annoyed that he would only allow us to have three buyers on the go at any one time that we could actively talk with, because he didn't want the property flogged around. So I mean to a degree our hands were a little bit tied behind our backs. The salespeople weren't getting any traction. So I ended up having to get involved and I had a fellow I cultivated over the years who headed up the SCC pension fund, the state's electricity commission pension fund. So in the end I had to go to him. I spoke to him. He liked the property and within three, maybe four weeks of me going to see him he ended up agreeing to buy the property. So it's interesting in real estate to be successful, you have to be a finder and a finisher. Anything in between that you're just a glorified usher. You're just showing people through property. Unless you can list the property or ultimately package the deal up to sell it, you're not adding much value to the transaction.
Lang previously shared with us the struggles he encountered selling a 51-million-dollar property, which was already a challenge, but he starts off sharing with us one of his worst moments.
[00:00:17] The market plummeted 40 per cent virtually overnight. Blood in the streets and investors were heavily borrowed and fell madly trying to offload properties. And like I said we had a reasonably large sales team, at that point I had actually divested of the two residential offices so it was only commercial. But I need you to step back, take a helicopter view what was really going on, because I mean not only had to look after my own family and I had this sales team and a lot of them had young families themselves. So you know it's very difficult.
[00:01:13] You just can't as the next stage sack them all. In the process of looking at you know what could be done, I realized that there was still a whole host of wealthy investors who'd would actually pull their money out of the stock market two years earlier. They were all cashed out and they were looking to invest again but certainly not rush back into shares. Instead they wanted to take advantage of what were really excellent returns and the huge discounts now being offered from well-led commercial property. But they faced the dilemma and that was their complete lack of understanding when it came to the fundamentals of investing in commercial property. And you see everything virtually changed overnight and they knew there were plenty of bargains out there but they simply lack the know-how and therefore with the confidence to properly analyze and assess the opportunities in front of them. There are loads of property on the market but we now had a definite short shortage of qualified buyers and that's when I made that decision to change horses as it were and act for the buyer, who was now the strong one in the marketplace and then help them shift control through the properties available.
For Lang, starting to act for the buyer instead of the seller when it came to property was a lightbulb moment and led him to realise he needed a formula for investing in commercial property that would work whether the market was up or down.
[00:03:23] As you can imagine that the banks were running scared because of the parlous state of the commercial market. And if they were prepared to lend, more often than not their property variations would come in at less than the purchase price and therefore the traditional approach for structuring your deal no longer really stood true. And that meant that really despite all the successes and experience I've had on the selling side, I needed to come up with a totally new formula or method for packaging a deal given that the property market and the economy were now in complete disarray. And even though I had negotiated some good purchases for some of my new investor clients. We would all comply and as I said the banks value is submitting a lesser figure because the lenders who were already heavily exposed after the crash had become overly cautious as far as their lending was concerned. And so the usual approach simply didn't work. Unfortunately lenders always had the final say or so it seemed.
[00:04:43] If you were prepared to be bound by the traditional way of buying a property and just to summarize, you signed the contract, you go to the lender. You have the property valued by the banks valuer and then you hope that that equalled the price that you paid. Now I said it wasn't in the early 1990s through to probably about 94 or 95.
[00:05:14] And so you know to overcome that some investors would say, “Well I'm gonna buy subject to finance”. Now if you're lucky enough to strike a vendor who is really desperate you might get away with it. But most vendors are reluctant to take the property off the market especially when there's no certainty of a sale. So the other thing I had to consider was that when the market started to improve, as I knew it would, vendors would be even less likely to agree to sell subject to finance, and that's when I realized the new formula that I was putting together had to cover every aspect of the transaction. It also needed to work in a rising market as well as a floundering one.
Lang eventually came up with a nine-step formula which since 1993 has completely transformed the way people invest in commercial property.
[00:06:05] By this time I realized there was no turning back. I simply had to find a solution because you know I had to survive financially. And so after spending weeks pulling apart and analyzing traditional approach to purchasing commercial property, I came up with my new nine step investment formula. Now you have to understand that none of this is really sort of Moon Landing stuff. I mean all I did was reverse engineer the investment process, starting with things like identifying and analyzing the commercial property to negotiating, documenting and financing the purchase through to its ongoing ownership until you ultimately sell the property down the track.
[00:07:10] And everything was pulled apart and put under the microscope. However with all the components now laid bare it became clear that two of the steps were clearly occurring in the wrong order and a further three simply weren't beign actioned so as to fully safeguard an investor's best interest and suddenly it seems so obvious.
[00:07:37] I started to wonder why no one else bothered to recognize this before and then it hit me that there'd been no need to until the turmoil from the property crash had been unleashed. Up until then people were prepared to blindly accept and follow what had presumably evolved over generations perhaps centuries as a way of transacting commercial property. I mean they'd simply never bothered to question why, nor consider that there might be a better way of structuring a commercial property deal. So anyhow what I can do for the listeners, if you like, is I'll give you a link that you can go to a keynote address that I gave to a conference of about 100 delegates and access to that is normally sixty seven dollars to listen to that keynote address. However what I'll do for your listeners is to give you a link where it will the only cost will be a dollar if they type in, when they click on that link, the coupon of sixty six off into the coupon box and that will give them access to that. And that will completely explain that formula which I can't really go into now. But as I've said they just type in lowercase 60, the numbers 66 off, “0” double f into the coupon box, they can grab hold of that for just a dollar.
Lang answers the question as to why he wrote seven books on commercial property and where you can get them.
[00:10:40] The answer is really quite simple, it's because there's really only a handful of books which fully explain the fundamentals you need to know in order to be successful. Most of the books are American or full sort of hype and success stories that you are unlikely to emulate yourself, certainly not from relying on reading these books. You'll find on my website commercialpropertymadeeasy.com.
[00:11:18] There's a whole host of material most of which you'll discover is free. And so that's what I suggest people look at because there's really not a lot of sensible books available in the marketplace.
[00:11:43] They were each written for the time, the last two “How Investing in Commercial Real Estate Really Works”. And then the latest one which I've called “Commercial Property Made Easy” which got on to number one in two categories and went on to be a best seller. So you can get those either directly from Amazon or from from the website Commercial Property Made Easy.
He then shares with us the best advice he has ever received for when it comes to investing in property.
[00:12:42] Hard work beats talent when talent doesn't work hard.
[00:12:53] Well probably that came through my playing you know top grade football. And that is that I'd always rather have on my team someone who might have 80 percent ability but 100 percent commitment because I knew if something went wrong it wasn't their fault.
[00:13:15] Rather than have someone who is immensely talented but doesn't necessarily usual talents. I mean commercial property is basically a game,
[00:13:31] so if you're able to uncover the rules then you can begin to play. But true success only counts when you start to master those rules. So you know you have to put it in. It's not something you can just play it. I mean it's serious. I mean you don't want to get bent out of shape over it but you have to decide that it's something you want to do.
Lang has some advice for us when it comes to dealing with people and tells us why he always carries with him a notebook and pencil.
[00:14:20] What I find whenever you have dealings with people what you try to do is to keep the ball in someone else's court but always let everyone know where it is. And that way you keep things moving and never get blamed for causing the delay. I mean what I find some people do and most agents are not good at this,
[00:14:50] they say, “But I've been working so hard on it and you know I've just come to trouble.”
[00:14:55] They don't keep their clients involved and advised, or up to date. I mean a client if they know what you're doing step by step and it doesn't work out, they'll live with that because they've been kept up to date. If there's a gap of two or three weeks between one conversation and the next and it doesn't work out, you'll be blamed for it. Mightn't be your fault. But it's a matter of keeping everybody advised and up to date.
[00:15:27] Another thing: I always carry with me a small notebook in my shirt pocket at all times along with one of those stainless pencils. That way, I'm never fumbling for somewhere to jot down an idea or notes even if I wake during the night. I might be the only one that can read it in the morning.
[00:15:48] But you know you have to be able to do that and I'm reasonably high tech in what I do and the way I've set up my website just as you probably gathered, I've automated one half of the transaction we're talking about. But you don't confuse technology. I've been doing this since the first year I started in real estate and so you know it's closer to 50 years, and you see if you can the evening before my notes on something you've got to do the next day, more often or not the ideas will start to flood into your mind so that when you wake in the morning you hit the ground running on that report or proposal that you need to write
[00:16:44] first thing the next morning. Most people when they've got a big report they put it off; the secret is just make a start. As I said you might be sitting in front on the telly or waiting for your partner to have a shower or something that night, just jot a few notes down and watch. Just might be three or four bullet points or thoughts or something. But I mean I can't you how many times I've been shaving and I've got an idea. Most people think
[00:17:13] “Oh yeah I'll remember that,” well you won't. You get into the office and think to yourself, “What was that idea I just had?” Just write it down. It's not rocket science.
[00:17:25] And sometimes your best ideas come to you when you least expect them.
**Property Investing Strategy**
Lang further elaborates on his the first few steps of his nine-step commercial property strategy, which involves filtering properties using his app, and buying subject to a valuation.
[00:18:16] The first one is how to filter your properties.
[00:18:24] As I said I've created an app to help them do that.
[00:18:30] Then if you've become part of our mental group there is some proprietary software I've got that takes I think about 18 components and it's called the Final Judgment software. So you've got your short list, now you put them through this complete financial analysis and create a projected cash flow going forward. The third step I call “How to Sleep Soundly.”
[00:19:00] You remember we talked about people wanted to buy subject to finance just for that peace of mind that they're going to be able to get the money? In fact you don't have to buy a subject to finance, you need to buy subject to a figure you know a valuer will support, and so what I do is I've come on behalf of my clients, I've come to an arrangement with a firm of values to tell me in advance the figure up to which they're prepared to support and so long as we don't do a deal higher than that then we know that that's what the figure that they'll do the valuation at.
[00:19:48] Isn't that also dependent on the leases and also the area and what's missing in the past. When you come to those valuations as well.
[00:19:58] Correct. But what I've given to the valuer is all the information I have.
[00:20:05] The information memorandum everything about the property and the valuer at the level I'm talking about know most of the properties that are available, the might not know the specific lease details which is what I provide, but they physically know the properties over in the course of their activities, over the last five 10 15 years have been in or around the property.
[00:20:31] So that's not difficult to make.
[00:20:36] So they can readily provide me with what we call the maximum limit that they would support.
He then tells us the next couple of steps in his nine step commercial property strategy.
[00:20:51] The next step is negotiating the deal.
[00:20:56] I mean it's all very well having that figure but I've got to package it up and get it down to no more than that figure. Ideally in most cases less than that figure that they'll support. So we've negotiated the deal and we've exercised the executing contract, but what I built into the contract is that due diligence period. In other words to validate that. Now if it's a small property that's not necessary. Once it gets up over a million billion two million or whatever, you want time to analyze it. So my approach is the vendor says, “Everything's fine.” I say, “That's beautiful. I believe you but I just want a couple of weeks for my team to evaluate and validate the purchase price”. Well not the purchase price but the property itself. Now if a vendor balks at that rule my response immediately is to say to the agent, “Well is there something wrong with the property? Are you concerned we're going to find out that some defect?” Mostly they say “no,” I don't want extra time, we'll enter into the contract but we have a period where there are some times if it's a simple one we might do seven business days. I've started 28 business days and generally we finish about 14 business days. Now it's interesting 28 business days is actually a long time when you take the weekends. Doesn't sound that much even seven business days is actually ten days.
[00:22:45] All right. So we validate the purchase and therefore people can feel comfortable that they have shortened out the commercial terms so they're happy with the price. And now we just validate that the property is what we thought we bought. Next step is how to lock in your loan terms. Now part of a deal going back to step 3 which was the value and had a slight only, part of the deal to do with a valuer was if you provide me with that limit up to which you support, when my client buys the property—assuming it becomes unconditional—I will have my client instruct you the valuer to go and do the valuation. You say, “Well, what's smart about that?” Well, thing is that you see normally the valuer who is on a panel of lenders or on a lenders panel has normally to wait in line because they circulate. There might be seven or eight on the panel.
[00:23:52] So he gets every seventh or eight valuation from that lender. This way he gets guaranteed so that's why when I explained the process they're happy to give me the figure up front that they support because they know they're guaranteed to get the valuation as soon as we buy.
The next step is to tie together the valuation and finance...
[00:24:18] The real thing is that we get them to give us the valuation as a soft copy, not a bound copy, and then we give it to the mortgage broker, who then sends it out to the two or three or four potential lenders, and the unspoken implication is “don't muck us around” as far as the commercial terms of the loan deal or the legal claims of the loan deal because you haven't yet been approved or appointed. Remember I said that people were doing things in the reverse order? Most people go cap in hand to the lender, the lender organizes the valuation, and particularly back in the 1990s and it's happened again now, with the concern that with the banks having in the royal commission is that you know two or three weeks out from settlement that come to you and critic committees a little bit nervous will need to have a lean over your business as well. 2 or 3 weeks out from settlement, you got nowhere to go. Because they own the valuation. So by doing this way, not until we get the commercial terms we're happy with and the financial terms or the legal terms of the mortgage document we're happy with, do we tell the valuer to assign the valuation across to the chosen lender. They don't like it.
[00:26:02] You get to pay for the valuation anyway, whether it's by the bank or you instructing, so you may as well get much most value out of the valuation by doing it this way.
In the next two steps of the nine-step commercial property strategy, Lang delves into adding value to one's property.
[00:26:19] Step seven is setting up your tax benefits. That's depreciation and cycle. Step eight is how to add value.
[00:26:31] And that's by doing something clever. It's value other than what would occur naturally through rent increases and affirming yield. When you buy a strata title most people assume that you'll live with it. But with most of the ones I buy you can actually further subdivide the strata title, it's legal to do that. Most people don't even know that. Let's leave that aside. If you buy a property, a standalone property, and you've got three levels, well you can immediately add value by creating a separate strata type of reach will. Or you might divide, it might be a three floors but you can actually create six titles, you can put two separate tenants or titles on each floor. Now you may not ultimately sell it as individual titles but the mere fact that you have now six titles or three depending on what flexibility there is instead of just one title will generally shave about 0.5 per cent off your selling years. So that was if you bought it for six and a half percent you could sell it for six percent. In other words that value you can add because the next purchaser knows if they get caught short during the term of their ownership, they don't have to sell the whole property, they could sell off one, two, three, whatever is necessary
[00:28:15] of the smaller titles and still get to hold some of the profit.
[00:28:19] By doing that I guess the question is how much would you need to invest in doing that to get profit because there's obviously gonna be an additional cost to it to add value.
[00:28:39] Depending on the size of the property it will cost you anywhere from eight to twenty thousand dollars but it could get anything from eighty to two hundred thousand dollars to the value of the property; that's a pretty small investment.
[00:28:59] At least 10 times the value of the cost is added to the property.
He then shares with us about the final step in his nine-step commercial property strategy, which is called stealth marketing.
[00:29:24] I automated one half of the transaction and that was delivering educated buyers to me. This is using technology to also sell the property. Now most people when they talk about using the Internet, they simply put it up on commercial real estate dot com or real estate commercial dot com and then a couple of them and that's their idea of putting it on the web. What I suggest people do... I mean the property needs to probably be at least two million dollars or more...but you created a dedicated website for the property and instead of preparing an elaborate information memorandum you're actually put all the details up on the on the website. And you tell us there's a story and you also include all the legal documentation as well. You see, you'll notice now that very few properties go to tender; they used to but they don't anymore. They're mainly more expressions of interest. Yes now the reason for that is that—and I say this ever so kindly—most agents are lazy and as much as they want to rush the property on the market they don't necessarily have everything in place to satisfy the questions that the purchasers are likely to ask. And therefore if you go to tender and you've been asking questions and little by little you've got information you have this sinking feeling at the end of the campaign. Do I really know all that I need to know about the property sufficient that I'm prepared to put in an unconditional tender and so therefore people were putting in effectively expressions of interest and that's where that process of evolved from. Put it in an email or a letter or something like that but it wasn't binding. So the agents thought well you know that's what they're going to do anyway. Most will just do an expression of interest campaign. So again I just sat down and thought about it well. The reason is that they don't feel comfortable. They've got all information so why not, given that it's going to take a lawyer to prepare an auction contract probably two or three weeks, use that time to prepare a website, a dedicated website, that has everything about the building, everything about the tenants, everything about the marketplace, any adding value options that people have got; and also have a complete section of the absolute everything legal documents that they have, a contract, the vendor statement, all the individual town planning, all of everything. Now the beauty is that what normally happens is that agents will have an ad in the paper and the people go to the property and they get partway through inspection. They say, “No, it's not what I want”. So from the agent's point of view they wasted half the day getting there and they are getting there probably half an hour and probably another half an hour getting back to the office and it was unproductive. Having a website the potential purchasers know within 10 15 minutes whether their interested or not interested in the property. They got everything: photographs, some videos, all the documentation, so if they then ring about the property, they're already partly briefed and what I find is you go to the inspection then they come with printouts from the website. So they're already fully briefed.
[00:33:38] The other thing is that what I encourage mentors to do is to if they've got a recent valuation to actually put the valuation up on the property, on the website. And you know recently I had a bit of objection to this and I said, “No, think about it”. The first question an agent gets asked what do you think the property's going to sell for.
[00:34:11] Yeah. And there's two responses. Whatever you tell them, some people are gonna think I was the agent underquoting and just wants to get me interested or I'm just talking the price up to get the best possible price for the vendor. So I said if you put the valuation up there, the agent doesn't have to say anything. We got a valuation trigger and let's say it cites figures that say 5 million. It's no longer a 5 million dollar decision they've got to meet. It's a one or two hundred thousand dollar decision. I'm going to put in a bit schlock less than that or slightly more than that. But it's no longer the agent trying to keep you along, its the valuer who...the independent valuation that's been done probably for mortgage purposes or whatever. So that focuses their attention. So again it removes that uncertainty and by shooting in the dark. No I know what the valuation is. So they make a commercial decision now we're going to come and start with this or slightly more so when they get to the point where they put in a tender they suddenly realise, “Gee if I don't put in the live conforming tender, there's going to be other potential bidders who have all the information I have who will put it in the conforming tender in which case the vendor will accept that and I'll miss out.”
Last of all, Lang tells us about what advice he would give to his twenty-year-old self.
[00:36:14] Well for someone who's been in property this long I guess I'm surprisingly tech savvy. And that is now helping me to automate 80 to 90 percent of what I do. But if only I'd realised this 20 years ago it would have made such a difference.
Chris Lang is also giving away a free report called the Investor's Guide for Commercial Property.
To download your free copy, simply visit propertyinvestory.com/commercialpropertyguide
I’d like to say a huge thank you to Chris Lang for joining us on this episode of Property Investory.