Real Estate Investor Magazine South Africa May/June 2019 | Page 39

D
on’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 com-
mercial 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:
1
2
3
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.
RESOURCES
ThePropertyCoach.co.za
SA Real Estate Investor Magazine MAY/JUNE 2019
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