A simple strategy that focuses on positive cash flow commercial properties has paid dividends for Byron Bay investor James Dawson, whose property portfolio generates a net income of several thousand dollars per week.
A resident of Byron Bay for over two decades, James Dawson has been semi-retired since his late thirties, and it’s all thanks to his savvy property investments.
More specifically, it’s his skill in securing consistent positive cash flow from commercial property investments that has set him up for a lifetime of freedom.
James now shares his insights, his strategies and even the properties that he finds that look interesting to him to clients to help then achieve the ‘ultimate beach lifestyle’
“When I came up to Byron back in 1991 or ’92, I didn’t need to work because I was living off rental income from my portfolio. I got a bit bored and started investing again because I just love property,” James explains.“I keep involved in developing on a small scale, like the two apartment developments I’m working on now. I’m also doing some renovating at the moment.
My days are relaxed – I might just talk to consultants, work with a few clients or do some research online. I usually have a rest in the afternoon and I like to surf as much as I can. My partner and I also enjoy going to Europe for a few weeks each year.”
He may be living the good life now, but that hasn’t always been the case. When he was in his twenties, James was working long hours, putting in six or seven days a week as a real estate agent. He was on the fast track to partnership and his career was progressing at breakneck speed. But it came at a cost, as he rarely had a moment of time to himself to enjoy it. The money was great, but “the stress”, he says, “could have killed a horse”.
James’s property epiphanyBack in 1982, as a young real estate agent working in Newcastle, James was earning a good living. Selling came easily to him, and at the age of just 25 he was offered partnership in a local real estate firm.“
I became one of the youngest partners in over 100 years of the company, and I thought I was set, but I realised I was working harder, getting busier and coming in to work earlier than ever before,” James says.“One day I came in early and saw one of the old partners, Rob, poring over a leather ledger; this was before computers. He said it contained all the properties he owned, which he was going to retire on. He had about 20 commercial and 20 residential homes.”
James was intrigued. He asked Rob how he decided which properties to buy, and Rob said his number one rule was to only buy property that paid for itself and generated positive cash flow from day one.
“It got me thinking. I was not far into my partnership and I was already flat out, on the way to being burnt out!” James says.
At this stage, he had a few residential properties that were costing him money to keep each month.
“I had a complete change of heart. Within six months I sold my partnership and decided to focus solely on buying cash flow positive properties.”
5 reasons to consider commercial property
1. Less competition
“Ninety percent of people are investing in residential real estate, so in commercial you are only in competition with 10% of the market, which means you can negotiate big discounts,” James says.
2. Long leases
While a residential tenancy can turn over every six to 12 months, a commercial tenant invests much more in the premises, because it’s their place of business. Therefore they are more likely to stick around for the long term. “Longer leases of three to five years are standard, with regular rental increases ‘locked in’ as part of the lease,” James says.
3. Low vacancies
“It comes down to buying the right property in the right location in the first place. If you buy in the right area, there is a very low risk of them being vacant for long,” James says. “To give you an idea of the success you can have in a busy, bustling area, I’ve had a property that was leased 22 years straight.”
4. High returns
James says he enjoys much higher yields now that he invests in commercial real estate. “Residential returns are about 4% if you’re lucky, whereas with commercial property it’s not uncommon to receive a 7–12% return,” he says.
5. More affordable entry points
“If you’re working with a smaller deposit of around $30,000–$40,000, you’ll often be better off putting that money towards a lower-priced commercial property instead of a residential investment in an outlying area. It can be a much smaller upfront investment than most people imagine.”