Investment tips from a sophisticated property investorGraham Upton has been in property for a very long time. As the owner and principal of a building consultancy, property depreciation and quantity surveying firm he knows a thing or two about constructing, buying, owning and selling property.

Graham Upton property investorHis firm is called P.E.P. which stands for Precision Expertise Passion, so it’s not surprising to find that he is a big fan of research when choosing where and when to invest in property.

“There are many property investment opportunities and proponents in the market place – some of which I don’t know from a bar of soap, so I’m not as confident in dealing with unknowns.”

“I have reviewed quite a few property fund manager offerings to find out how they go about their business – specifically do they over promise and are they in business for maximum profit or are they in business because they can provide a service of value to you?”

“I knew Steve de Nys when he was an agent and started to get involved with Stronghold Investments when it was just a start-up. By chance I also knew a couple of the guys from Graystone (the construction company which is a part owner of Stronghold),” he said.

“Graystone develop, hold and sell property and I’d helped them in the past with property services for the acquisition, construction and management of some of their assets.”

Graham has since invested in a number of Stronghold Investment Funds and offers the following advice for how and why he chose to invest in wholesale property trusts.

 

Commercial buildings in a good location can deliver stronger returns and a higher capital gain compared to some other investments

Graham says when investing in any sort of property, it’s particularly important to know your location and the potential for growth.

“A syndicator (managed fund) will try to articulate this in their documents but it is always good to have your own working knowledge and do your own research into the location so you know where the growth is, if it is a good location and if it will still be a good location in five years-time.”

 

Understand the risks associated with owning and leasing a building

Commercial office assets require ongoing maintenance and property management. Depending on the type of building and the mix of tenancies, the cost and burden of this management can fluctuate.

Graham says having a basic understanding of how commercial leasing works, the obligations of a commercial property owner to its tenants and how much has been set aside to maintain the building and manage vacancies is important.

“As an investor there is an assumption and requirement that the repairs and maintenance for a property will be dealt with in a professional and value adding manner and covered by funds  provided through the property income stream” he said.

“Unfortunately, some companies, even though they retain some funds from the capital raising, don’t often spend the money and find better satisfaction in returning the money to investors than maintaining the assets.”

Further, Graham says if you find a fund manager that maintains their buildings to a high standard, then you will see the rewards in both occupancy, rent values and capital value.

 

Is it really your cup of tea?

Owning units in a wholesale commercial property fund is a long term commitment. It is similar to owning the property outright, in that, you can’t realise the capital value of your investment until the property is sold.

Graham says even though the burden of day to day management is shouldered by the fund manager, it’s still not everybody’s cup of tea.

“It comes back to liquidity. Can you leave your money invested in a building for five or seven years or more, as opposed to buying into an AREIT (a listed open ended retail property fund) where you can trade in and trade out tomorrow?”

“You might get 6.5 to 7% on an AREIT and a small capital growth in the unit value, but syndications will often give you that or more – typically you can be looking at a return of 8.5% to 9% for the term.”

 

Get to know the people behind the fund

“I don’t think you have to know your fund managers to the depth that I do but one of the attractions of Stronghold is that it isn’t a large corporate entity with lots of overheads and layers of management,” Graham says.

“There is a core group of people that can be contacted and who have a vested interest in the outcome for investors because they are in fact co-investors themselves. I get the feeling that these guys (Stronghold) are not here to take the money and run, they really are trying to make the most of the investment.”

 

Understand what a fund manager does and how they do it

“You are taking a lot on trust when you enter a fund like this, so it’s important that you feel like you can trust the managers to work with your money to make more gains,” Graham said.

Graham suggests you look at the experience of the people behind the trust, their track record of delivering on their promises and the number and type of properties in their portfolio. Naturally, if you have experience or exposure to the types of properties in which they invest, then you will also understand more about the business.

“One of the things that gives me a stronger belief in what Stronghold does is the yield that they provide and how many properties they have under management and how often they come back to you with more opportunities.”

Graham is often contracted by Stronghold to provide depreciation analyses of the properties under management, assist in preparing technical due diligence and completing defects reports on new properties including most recently, the Quest Hotel at Brisbane Technology Park (Benlee Stronghold Property Trust #10)  and the latest purchase by Stronghold  at Compark Curcuit in Melbourne (Mulgrave Property Trust #11).

Graham’s company, PEP, provides professional property and construction services to the property and construction industries, specialising in the critical aspects of quantity surveying, property depreciation and technical due diligence reporting.

PEPs heritage started in 1985 and was re-branded in 2007 as a multi-disciplinary property and construction consultancy utilising extensive skills and experience in all aspects of those industries.