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The Best Cash Flow Strategy For Australian Property Investors in 2026 · The Follio Property Podcast

• 0:01
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• 0:56
  If you buy an $800,000 Strata office three years ago in Melbourne, you could be down 50%. Alex Grove is here. He's the founder of Vanta Advisory. And today, he's revealing why the golden rule of property investing... Is actually a trap. It's costing investors millions. That's where I get really nervous in that space. If the budget's not north of 2 million, we shouldn't be looking at commercial. Exactly. You're really seeing a drop in the quality of assets. You're getting a man cave type properties. It's not recession proof.
• 1:23
  The experts that should be giving the right advice are buying low quality assets with low quality tenants. Yeah, the 6% number just baffles me. It's a golden number. If it's not 6%, we don't buy it. I just don't understand that methodology.
• 1:36
  Looking into 2026, where's the best opportunities in commercial space? Industrial is still going to be a strong performer. Still looking at WA, South Australia, Queensland very closely. You want to sell to a man or a occupier who's going to pay arguably more. That's what I say. You'll actually make money for tenant leaves. Your downside is you buy a $3 million asset, it goes vacant, you've just made $300,000. That's your downside. The upside is you're renting for 10 years at a 6% return. That's the hours of commercial property.
• 2:03
  You're listening to the Folio Property Podcast. I'm Rhys Bettle and I'm here each week with my co-host, Lachlan De La Hunty. Lachlan, we did it. We've launched the National Investment Report. There's going to be a link in the show notes. Scan the QR code if you're watching it on YouTube as well, on the TV. Got a special guest today. Maybe someone with a more controversial haircut than myself too. Yeah, I'm the one out today.
• 2:27
  We've got Alex Groh, founder, director of Vanta Advisory, advocate for quality assets, which we see a lot of similarities between both what our values are, Lachlan, and what Alex's are. And he's in the commercial buying agent space. Welcome. Welcome, Alex. Hey, guys. Pleasure to be here.
• 2:46
  Let's kickstart Lachlan because we get through our business and we're pretty focused on residential. We do get a lot of clients coming to us regarding commercial and sometimes they're not actually in a position to go for that. Where do you see commercial from a strategy standpoint in a portfolio? Yeah, it's all, well, you buy commercial, you've had Keldoggin on your privacy and you're buying it for cash flow.
• 3:07
  where residentially, typically, you're buying it for capital growth. So where does cash flow sit for me in a portfolio? Typically, it's as you're getting closer to retirement and you want to replace your income. That's typically where it's most appropriate, certainly not for your first-time investor, likely not for your second time. But as you go through the journey of investing and you build a portfolio and you build equity and assets...
• 3:28
  And often some of the properties we buy recent residential is heavily negatively geared and we want to flip that later in the journey to more cashflow positive assets. I think commercial is the perfect space for that because you can get quality assets and I'm sure you'll talk about this Alex, is quality assets where you get almost a guaranteed income but you're not really banking in capital growth. Is that a fair assumption there Alex?
• 3:52
  I think that's a good way to think about it. Typically, clients are transitioning from residential. As you said, they've accumulated their wealth in the residential market. Typically, commercial is not during that wealth accumulation. Of course, some clients will do really well and have a lot of equity uplift in that portfolio. But it comes when cash flow is critical. And when you're looking at a portfolio and maybe you can't borrow any more because you can't hold any more negatively geared assets.
• 4:16
  Perhaps you're looking to slow down work and you need some income in the future to replace your personal income. So that's a really good spot for commercial to come in. I suppose a caveat to that is it's not always a straight transition. I own three residential properties. I'm 50 years old and now I'm looking to buy a commercial property because I want that to support my retirement. It's not always that black and white. And often the case, it doesn't actually ever occur that way. At least that's how we see it at Vanta because...
• 4:46
  you have to be really conscious of good quality assets when it comes to commercial. Are there people out there doing that? Like, would there be solutions for those clients at the moment? Like are people putting those clients into commercial assets that you're seeing on the ground? Absolutely. I think that's that's kind of where this commercial market really hit the ground running, probably seven, eight, nine years ago with those type of clients looking at, you know, your more basic assets.
• 5:08
  And listen, the markets have performed in some sectors incredibly well. And what you used to be able to get for $800,000, which is a lot of kind of mum and dad, you know, first time commercial investors, that's now probably one and a half to $2 million. So that price point has jumped drastically.
• 5:24
  That's where I get really nervous in that space. And when I meet with clients, I said, if you don't have, if the budget's not north of $2 million, it sounds significantly, we shouldn't be looking at commercial because of the risk profile or the tenancy profile that you attract under that $2 million. Is that a fair statement? Exactly the way we look at it. We think $2.5 million is really where you need to be. And even in that case, you're not necessarily going to get an amazing freehold on a big block of land in a capital city.
• 5:49
  But you are going to get something that's good quality. You're going to get something in a metropolitan market that fundamentally has low vacancy, a big pool of tenants. And even when you do lose a tenant, there's going to be plenty more ready to go when that fills. Whereas when you're playing in that, call it $800 to $1.2 million range, right now where the market's at, you're really seeing a drop in the quality of assets. You're not getting...
• 6:12
  strata type assets you're getting strata but you're not getting a good size strata warehouse in a metro market you're getting a you know more of these man cave type properties 100 to 150 square meters which not typically see people store their boats and toys exactly it's not typically for a business to actually run a business from right it's it's a it's a it's a hobby investment it's maybe maybe a brand new startup business you know it's not someone that's been trading for not recession proof not recession proof and because of how many buyers are in that pool
• 6:42
  and the push for buyers to get into commercial from a lot of these big players in the game. So big buyers agencies you're referring to? Big buyers agencies. These markets, they're flooded and they are so competitive transacting in these markets. I've never tried. I sit from the outside and I look in to see what's happening.
• 6:58
  And some of the results that sales agents are getting in these is incredible, which is great for the sales agents. Hats off to them. They're doing their job. But certainly if you're being represented on the buy side, going into these assets, I just don't see what the future is, where your income growth is going to come from, where your capital growth is coming from, and how recession-proof these are. Because a lot of these are getting built. When you're seeing a lot of sheds come out of the ground, you're seeing these type of assets get built. So they have the
• 7:28
  too much supply. Looking into 2026, me and yourself actually have a conversation when the beauty of your role is you're not wedded to one particular market and you can kind of manoeuvre where the best opportunities are. But putting, you know, from an asset selection and location perspective, where's the best opportunities in 2026 in a commercial space?
• 7:48
  I think industrial is still going to be a strong performer this year. We've come off the back of five, six years of unbelievable growth. There's a lot of different people that publish a lot of different stats, but there's a lot of people that say industrial has outperformed every residential market in the country over the last five or six years.
• 8:06
  which it certainly has in some markets. Do I think that that 10 plus percent compounding rental growth is going to continue? No, I don't. But are we going to still get good rental growth? Absolutely, because key markets have no vacancy. There's no stock to buy. And we know, as I was saying before, that owner occupiers are really driving these markets. And like we see with residential, investors can push a market to a certain point, but then they're looking for returns. And if the returns aren't there anymore...
• 8:33
  They exit or they just don't buy. But the owner occupiers keep pushing. You're probably seeing it in Perth, in residential now. A lot of owner occupiers are now taking that market to the next level. And that's where you want to be targeting, right? Like we talk about reducing downside risk. Residentially, we always target strong demand owner-occupier areas. And it sounds like you've got the same methodology. Same thing, absolutely. For commercial. Again, if you lose a tenant, you have to sell. You want to sell to an owner-occupier who's going to pay
• 8:59
  But you're more arguably more. That's right. So industrial, I think, is going to have a good year. Metropolitan, we're still looking at WA, South Australia, Queensland very closely. I'm from Melbourne. I think there's green shoots for the Victorian industrial market. I don't know if they're coming now. And my advice to anyone looking at Victoria is it could get a bit worse before it gets better. Or it's just not going to jump as quick as some may think. Yep.
• 9:25
  But again, diversification play, parking, your money, long-term wealth, preservation, plus the potential upside that we have to get at some point with the biggest industrial market in the country. We've got the lowest rents of anywhere in the country. Even regional towns like Townsville are seeing higher rents than we're getting in core markets in Melbourne.
• 9:45
  That's the opportunity, right? That's why we took a position in Melbourne in the residential sense, you know, 12 months ago when it was the same sort of problems, right? It seems ridiculous how low rents were, you know, what median house price were, et cetera. So. Absolutely. So I was saying to Rhys earlier, commercial typically has some relationship with residential. I found that it typically moves a little bit later. So there's this 12 months lag period, 12 to 24 months lag. So we've seen residential in Melbourne start to kick.
• 10:12
  I think we're a touch early for industrial and retail and office. We're certainly early for office. I wouldn't be touching office for quite a long time. But industrial and retail could still be another 12, 24 months away. But park some money. I'm not going to say take a risk, but take a position where you may not get that growth in a quick period of time. And I think you can't go wrong with Melbourne.
• 10:34
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• 11:04
  Good. And then just to, I suppose that's the upside. We see the risks that probably correlate with some of these other big buyer's agent conglomerates on the East Coast that are buying strata. Yep. Yep. I see the risk in office. I've seen a lot of New South Wales entrance into Melbourne office markets. If you're on the ground in Melbourne and you have any knowledge of anything to do with real estate, you are not going anywhere near office. It has to be, we're talking like maybe at a 10% yield.
• 11:33
  As I've said, write-downs on offers have been 40% to 60% on some offers. And we're talking some of the big, like $30, $40 million buildings have halved in value. And that's continuing. It's 100%. Offense vacancy is the highest in the country in Melbourne. It's just not a market I'd be going anywhere near for a long period of time. We have to have some real structural change in Victoria and the office space for that to be appealing. Unless, of course, like I said, 8%, 9%, 10% yields. Maybe that's enough to take a risk. Yeah.
• 12:01
  six percent on an office asset in victoria it's just crazy i would not touch it with a 10 foot pole you know retail other markets yeah there's probably maybe greener shoots for that but again retail is going to be heavily affected by what's happening in the interest rate environment you know as you said two three rate rises could be on the cards the discretionary spending comes down that's it and what what's going to be affected strip retail yep those type of assets
• 12:26
  But yeah, I don't know where it came from. I don't know what made this 6% the golden number. What I'm seeing out there, it's kind of if you see 6%, nothing else matters. It doesn't matter the asset quality. It doesn't matter the tenant quality. It doesn't matter what's happening next door if there's going to be 20 more of those same properties come out of the ground in the next year. If it's 6%, it's 6% and we've got to buy that thing.
• 12:49
  I don't know where it came from. I obviously understand you want to try to beat the current interest rate. But yeah, the 6% number just, it baffles me. It's now the golden number. It's the golden number. If it's not 6%, we don't buy it. And I just don't understand that methodology. Because when we're looking at asset, the yield is important. Of course, people are buying commercial for yield. But the yield on day one isn't necessarily yield over 10 years' time.
• 13:12
  You take a 6% yield to a karate studio that's probably paying over market rent. They probably have some illegal mezzanines installed...
• 13:19
  Well, they've probably put huge incentives at the front end where we'll fit it out for you that wasn't factored in, but on paper value. So those listeners' incentives. Yeah, well, you might sign that at that tenner for five years' time and you might say, listen, I'll give you 12 months rent-free. So 12 months rent-free on a five-year lease is a 20% incentive. You're probably getting a bit less than that for industrial and we're seeing office incentives up 50%, 60% in some markets.
• 13:44
  But you as the owner, you'd sign up that lease, you'd pay that out upfront, call it 50 grand, 60 grand, you'd just give that to the tenant. Part away from that. And you'd go to sell it and you'd sell it to the incoming buyer at a 6% yield. They're not paying for that incentive. They're getting the full rental for that whole period of time, but they're getting 6%. Is that quite common then on most commercial deals? There's some sort of incentive there?
• 14:06
  Yeah, definitely. I've got a deal right now that I'm acting as a vendor advocate for on a blue chip suburb. It's an office asset in Victoria. Blue chip, one of the best suburbs in Victoria. Whereabouts specifically? In Hawthorne. Yep. It's a good office. It's a top floor. It's got a balcony, really nicely natural lit. We're trying to sell that vacant at the moment to an office occupier.
• 14:27
  we can't get it away to save ourselves. We're getting offers we'd love, you know, mid ones, call it one six. The best offer we're getting is one one, one two. There's properties in that same complex right now that are selling with leases in place to some of these bigger buyers agency groups because they have a six percent in front of the yield and they're selling for the same rate that we're asking for this building.
• 14:49
  So we're talking a $400,000 uplift purely because- By signing a lease. By signing a lease that the perceived 6%, regardless of incentives. That's right, yeah. And that lease is not, you know, to an extent, the legal agreements, yes, but, you know, you get a tenant in there and they go bankrupt, you might get a three-month guarantee out of them, but all of a sudden you've lost 400 grand value in your asset. And then you've got to lease it up and you're looking at this particular market, a six to nine-month leasing up period.
• 15:18
  It could be vacant for at least 12 months sometimes. It could be easily. And then you're looking at a 30% incentive, which you're typically going to have to cough up up front. You could be up for another $100,000 on day one in fit-out works, in rent-free periods. And that's probably the most critical thing we look at when we're buying assets, not the yield. What's the downside and how do we protect the downside?
• 15:39
  Vacancy risk, really? If it goes vacant, what do we do? If a tenant leaves, what's the strategy? Is it to release? Because a lot of our clients are not in commercial to accelerate wealth and accumulate wealth, as I was saying. They're there to preserve wealth and draw an income from it.
• 15:55
  So the worst thing you can do when you're trying to preserve wealth and draw an income is lose wealth, is lose money because you bought a shit asset that the tenant goes and you can't lease it and then you're in a distressed position and you need to sell it well below what you bought it for. That's the absolute worst case. I'll take an alternative asset as an example and you can probably put a blanket over the entire industrial market around the country. You buy a warehouse with a lease in place.
• 16:21
  If that tenant leaves, you are almost certainly going to sell it more than you paid for it as an investment because the owner-occupier market is so strong pretty much across the whole country.
• 16:31
  For the larger sort of industrial format. For the larger stuff. You're talking, you know, probably 500, 600 square metre plus warehouses. So from a price point, $2 million and above. Exactly, yeah. So they're better off selling vacant to an unoccupable pay a premium than the investment space. And clients always say, what if the tenant leaves? And I say, that's what I say. To be honest, you'll actually make money if the tenant leaves.
• 16:52
  We're not going to sell necessarily because we want to hold these commercial assets forever. But that's your downside. That's your downside. Your downside is you buy a $3 million asset, it goes vacant, you've just made $300,000. That's your downside. That's your downside. The upside is you rent it for 10 years at a 6% return. That's right. And then when you sell it, ideally it's worth a lot more than you're paying. $5, 6 million, who knows. And so protecting your downside is one, in that owner-occupier demand, and two, you're buying an asset in a market that...
• 17:20
  you're never going to have to sell it in that situation because you're going to get a tenant. There's going to be tenants knocking on the door from day one ready to lease that property. So your vacancy time is going to be minimised. You're going to actually be up financially. You're probably going to get a higher rent than you were getting previously.
• 17:36
  What's probably the most concerning about this space, because what I'm hearing is you can lose money in commercial property and it's arguably the most risky space to enter as a unsophisticated investor. And I think that's probably why there's been such a surge in the reliance on buyers agency, because residential, we all lived in a home, whether that's rented or bought a home, we know what to look for, typically, broadly speaking, in residential property.
• 18:02
  There is unknowns in commercial real estate. So then we lean on experts to navigate us. But what you're telling me is the experts that should be giving the right advice, the buyers agents that should be getting the assets that's going to be suited for my portfolio are buying low quality assets with low quality tenants that for me spark speculation, but also high risk and the likelihood of losing money is quite probable.
• 18:26
  Well, that's all I can speak is what I'm seeing in the conversations I'm having with one, clients, but two, you know, their trusted network, their brokers, their accountants, their financial planners who have had clients in these positions. And I'm seeing it on a daily basis. You know, if you've spent 800 grand on a house...
• 18:44
  pretty much in any suburb in Australia five years ago, for the most part, you're probably up. You're probably not down. You might be where you are. If you buy an $800,000 Strata office three years ago in Melbourne, you could be down 50%. 50%. 50%. And we're seeing that's not only in that space. That's an issue of the state, Victoria, what's happening in the Melbourne office market. But that's the risk of commercial real estate if you're not informed or don't have qualified advice.
• 19:13
  Absolutely. And the assets that are getting bought today, I don't think there's any upside. All I can see is there's potential for downside. I'm not saying they're all going to fail today, but on the surface, what we're looking at is, can you protect your downside? In these assets, no. Is there any upside? Absolutely not. So the only option is downside. So I've got some examples here in the Gold Coast, $6,000 a square metre on 130 metre
• 19:39
  building, 130 square metre warehouse, at a 5.5% yield. 5.5%? That tenant's paying $350 a square metre rent. That's like you're talking prime Sydney suburbs are paying that kind of money. It's 6 grand a metre. You just think about how much money the developer's making. And again, hats off to them. You're picking up land for mid-thousand dollars a square metre. You're putting a shed on it for 2 grand a metre. Like...
• 20:03
  That's an unbelievable profit margin for the developer. And developers have to make money. They've got a role to play in this market, but I certainly don't want to be buying these assets for my clients, which have almost no chance of making money, and we're just making money for the developers. Yeah. So when I look at it, so just like zoom out, because we buy, typically you said you buy commercial for cash flow with potential for capital growth, residential typically for capital growth with potential for income.
• 20:29
  This is very broad speaking, but normally it's residential 6% capital growth, ideally 4% yield, and then you flip that with commercial, you look for 6% thereabouts. Yeah, mid-5%, 5% to 6%, 3% to 4% growth. In terms of yield, and then you might get 3% to 4% growth. Correct. Correct.
• 20:46
  They're forecasting, broadly speaking, three interest rate rises this year. Where are we currently sitting at for interest rates? It's about five and a half. For actual cost of debt? I mean, probably, yeah. Could be early sixes for commercial. Commercial's always a touch higher. Resi's like high fives. Okay, so we're currently sitting at early six, Alex, for commercial debt as we speak. Yep.
• 21:06
  By the end of the year, that could be mid-sixes, could be 7%. And yet this golden number of buying commercial property at 6% yields, all of a sudden we're buying commercial or people are advising to buy commercial that's negatively geared when you buy commercial for cash flow.
• 21:23
  Yep. Well, I think, yeah, that's a really good point. These assets, the issue with that is your big assets, they're not necessarily going to suffer. Your tenants aren't going to suffer the way that, you know, in a rising rate environment, you think of the businesses that could suffer and where a client's not going to spend money, where a consumer's not going to spend money, you know. There's a nail salon in the grand floor of a large apartment building.
• 21:47
  That business is going out of business before a large- Or a gym, a karate studio. Or a gym, a karate studio. Discretion expense goes down. These businesses suffer. So that 6% yield, all of a sudden that goes to 0%. But then the tenant market after that's probably softer. Now you're looking at $300 a square meter might come down to $250. So that 6% on day one, after 12 months, it could be now it's 5.5%.
• 22:12
  And 5.5%, you know, you could have not done nothing, but you could get with more money a really, really good quality asset for 5.5%. It's interesting. And that's where people have to be really cautious and make sure they're represented correctly because it's a dangerous space when you're talking about you can lose 50%. Who in the last five years has lost 50% in real estate?
• 22:33
  Yeah, in residential, I can't think of anywhere. You can't. The worst areas in the country and you would have certainly not done that. But we've sort of gone quite a negative tone towards commercial property. Let's talk about where it does make sense. And like I said, for us, it's the right clients when we can get, you know, we've accumulated a portfolio and cash flow becomes more important than capital growth. And it's typically later on in the investing journey.
• 22:57
  where we're starting to get out of this rats and mice, low-quality tenancy, sub-$2 million space, and we're getting really blue-chip tenets that, you know, the likes of, you know, the extreme versions we talk about, imagine having a Bunnings tenet or a Centrelink where you're backed by the government.
• 23:12
  Why is that important for the novice listener in terms about tenant quality? Because most people out there that are signing up to these buyers agencies that are getting 6% returns didn't realize that Jim's Karateo studio wasn't a sure thing. They thought that 6% is guaranteed for the next six years. Sorry it's not. So what's a good caveat?
• 23:33
  Covenant, caveat? Covenant. What's a good covenant? Listen, I agree with you what you're saying. I almost try to think about it in a bit of a different way to, you know, let's buy a Bunnings Warehouse or let's buy whatever with an A-grade tenant. We always peel it back to let's buy the best quality asset in the best suburb we can get access to at a $2 million plus price range. Because let's say you've got an asset side by side. You've got a, I don't know, a bulky goods centre on a main road
• 23:59
  Blue chip asset, great improvements. What's bulky goods? Bulky goods. It's like a Bunnings or like a boating, camping, fishing, super cheap auto. These big sheds. The big shed on a main road that a large retailer will go in. Okay. You buy that asset and let's say you buy it at a 6% yield, you could buy that same asset next door, leased to a blue chip tenant like a BCF, and that could be a 5%. And the only difference there is a tenant. It's the same property, side by side. So I'd much rather buy the asset that is...
• 24:29
  really good in terms of location, quality. The fundamentals are the same. The fundamentals are the exact same. Whereas where you can really easily add value in commercial, there's a lot of ways, but one of them is get a really good tenant in there because the incoming purchase or the value is going to look at that and say,
• 24:44
  BCF is more secure than Jim's Karate or Jim's Play Centre, whatever that is, but the property is the same. Let's get Jim out. Let's get Jim out and put BCF in there. Let's go from a 6% to a 5% yield, and all of a sudden you're talking hundreds of thousands of dollars in uplift. Alex, we've done quite a bit of work together over the years, personal and professionally. Talk us through some examples of that same situation where you've been able to get, an example comes to mind, a million dollars of uplift essentially overnight by doing that.
• 25:14
  Yeah, so we had a really good client of yours. This was a bit of a different scenario, but similar. One of the powers of commercial property, we bought an asset in Queensland in Willowong. It was a concrete till panel warehouse. Willowong is a great suburb, super low vacancy, established, no future supply coming. All the ticks that you guys look for in resi, the same stuff that I look for in commercial. They had a lease that was expiring roughly six months post settlement.
• 25:40
  Which would scare some of these. And it's not for everyone. This is important. And not everyone can buy that asset, one, from a finance point of view, because if you're pulling equity out of your resi portfolio, you're funding this with equity. So you're pretty much 100% debt funding this purchase. The valuer, in all likelihood, is going to say, we're not funding this on the bank. We're not funding this asset because it's only got six months left on the lease.
• 26:02
  So fundamentally, like a really well-located asset in Willowong, no threat of future supply because it's fully established. Concrete tilt panel, which is what tenants are looking for. And that's more important in some markets than others. Like Queensland, it's important. When the market's going good, everything trades the same. But when it's going bad, there's a flock to quality and...
• 26:20
  So reduce your downside risk by doing that. Reduce your downside. If you're a tenant, you want a concrete warehouse compared to a tin warehouse because when it's 40 degrees and 80% humidity, you know we'd rather work. But this, again, you're being picky in a good market. This lease was expiring in six months' time. We had really good discussions with the tenant and they were almost a sure thing to re-sign their lease and the market rent was, or the rent that it should be achieving, was about 40% more than it was currently achieving.
• 26:47
  Okay. Because the market moved a lot, they were coming to the back end of a five-year lease, four and a half years for their five-year lease, and it was going up by 3.5% every year. But the market in the background was doing 7%, 8%, 9%, 10% a year. So that's where you get that discrepancy.
• 27:03
  So it's what we call rental reversion. And we were really confident they were going to renew. They had a big contract coming up. They lease a property next door. They lease the property around the corner. So really well embedded, but still there was risk. You know, we did not say to the buyer, this is a sure thing. What we did know is worst case, these, these tenants let us know they were leaving. We had a six month window to lease up that property because we're buying in a blue chip area, good fundamentals. We're going to get a new tenant in there. Sure thing.
• 27:28
  And paying the new market rent. And paying the new market rent, exactly. So the downside was maybe, just maybe, you had a little crossover. It's not this tenant. It'll be someone else. It'll be someone else. And maybe you get a couple of months of vacancy. But the upside, you look at a couple of months of vacancy, I was getting maybe 200 grand a year. Call it 40 grand downside. The upside is 800 grand to a million bucks in terms of new rent, reset the value of the asset. Yeah.
• 27:51
  So that between essentially purchasing that asset and settling that asset, extending the lease term of the current tenant, you created a million dollars of wealth for that client overnight. What was the purchase price? 2.4 mil. So it's very palatable for a sophisticated investor with a larger portfolio. 2.4 million dollars is quite achievable. That's right. So it's not 4, 5, 6 million and you've created a million dollars of value. That's it.
• 28:17
  overnight by simply finding that opportunity. And what I found interesting about that, the larger buyers agency that dominate New South Wales wouldn't have bought that asset for their clients. Too low lease, you know, yeah, it's too risky. It's only got six months. We're looking, and the initial, importantly to this point, the initial yield we bought it at, and remember this is only for a three to six month period, the initial yield was about 4%.
• 28:38
  So it wouldn't have hit this beautiful 6% logo? It was 6%. It was 7% within six months, but it wasn't 6% day one. And is that what you're seeing out there with these buyers agency? They're purely focusing on that 6% yield? Yeah, listen, I think it's funny.
• 28:54
  I've certainly started talking about this for quite a period of time. I'm not saying I'm a trailblazer in the industry and I've set some type of thing for everyone to follow, but I've certainly seen a change. There's some big groups that are still, we only care about yield, 6% is the number. Maybe now they're dropping the standards to 5.75, but it's still heavily focused on yield and then asset and tenant quality comes secondary. But there has been a shift from some other groups that are looking at these ideas and
• 29:21
  Yes, commercials are for cash flow, but they're also looking at it saying it's good for cash flow, but some clients don't need cash flow day one. Some clients can wait 6, 12, 18 months to get above market cash flow and also get capital growth. They just need to take a little bit of a hit in the short term. And that's the exact example that my client was willing to take with you. And that was just over 12 months ago. That's right.
• 29:43
  Yeah, we had another example a couple of years ago in Queensland, bought quite a large asset, three and a half thousand square metres, a big industrial property for about $5 million. And if you just run your head around those numbers, you realise that you just can't buy anything anywhere near that. So those are the good old days. But we had that asset, it was about a hundred bucks a square metre. When we bought it, it should have been getting about 120. So we had a market review in 12 months.
• 30:07
  By the time that market review actually came up, it ended up achieving about $140. So that asset went from $5 million to $8 million in 12 months. So that's the positive stories in how to run the commercial market, right? And that's what those all have in common is the same thing. Good quality assets that appeal to a wide range of tenants in metropolitan locations with no additional land for supply. Like that's just a common theme that the ones that perform the best all have those same things in common. Same with residential.
• 30:37
  What about in regional? So we've spoken about the key difference between certain regional towns and what do you call it? Metropolitan. Metropolitan region. So they've got access to a larger CBD. Larger CBD. Is that from your perspective on commercial, is that the same? Like in terms of asset selection? Yeah, I look at it similarly. You know, there's...
• 30:57
  In resi, sometimes you can do really well of buying in these smaller towns. We've seen it. If you've torn the market to perfection. Exactly. We've probably done it. We've all done it ourselves. We've got into these markets. We've bought at the low. We've ridden it. But then we've got out, right? And that's the biggest thing. We've got out of this asset because we know it's not always going to be all rosy and it's not going to be 10% growth every year or 20%.
• 31:18
  So you exit, whereas, and that's okay for a resident because you're accumulating wealth. That's what you're doing. You're maybe flipping some, you've got some long-term holds, but that's a quick way to accumulate. We use regional almost like stepping stone assets for quick cash wins, right? Quick cash wins, you know, hold it for a couple of years, pull out two, three hundred grand. Throw that off your primary place of residence or reload into another market.
• 31:36
  Exactly. Where commercial, the clients I'm working with and want to work with, they're not doing that. As I said before, they're parking money into commercial as a long-term wealth preservation income generation strategy. So we're not going to come in and out of assets every two or three years. And that's where you've got this issue with the regional markets that aren't tied to big metropolitan markets. You're coming in
• 31:58
  Yes, you might get a 6% yield day one, but industry turns and then what? Then that's 6% yield. You can't sell it and you may not get a tenant. You can't sell it. You're not going to get a tenant. And the only way you're going to get a tenant is if you drop your pants on the rent and lower it by 30%. And now all of a sudden that 6% is 4%.
• 32:14
  And you've lost 30% value. So now you've got a 4% asset. You might have had five good years of 6% yield, amazing. But then the market turns and now you're at 4% in, who knows, I don't know, Townsville. So I don't want to shame me anywhere, but Townsville, do you want to hold a 4% yielding asset in Townsville? I don't even want to hold a 6% yielding asset in Townsville. I don't want to hold anything in Townsville. Exactly. But why am I buying at 6% in Townsville when I can buy at 5.5% within 25, 30Ks of Brisbane? Yeah.
• 32:42
  I don't understand. You're talking 50 basis points, you know, on a $5 million property. That's marginal income per year. That's not life-changing income. That difference in the years. You're better putting that in the bank. If you're looking for cash flow, you're going to get a better – and a safe return. That's right. As safe as it can be. Yeah. Beautiful. Thanks for coming, Alex. Pleasure. Thanks for having me, guys. You've been listening to Folio Property Podcast.