Learn more about the residential properties he managed to accumulate through renovation and splitting, the lessons he learned along the way, what inspired him to go into property in the first place. Also, we will be delving into the moment he realised he could turn negative gearing into positive cash flow and why doctors and solicitors make good long-term tenants. So what are you waiting for? Click the play button to get started!

Timestamps:

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Transcript:

Brian McNicol: 

So normally doctors, solicitors or accountants, once they're established, if they're comfortable where they are and they don't have desires to rapidly expand or to be bought out, normally they're going to be good long-term tenants.

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 Commercial Property buyers agent, Brian McNicol. We discover how he made the shift from investing in residential properties—14 of them, to be exact—to commercial properties, why professionals like solicitors and doctors make the best long-term tenants, his greatest “aha” moment and much, much more!

As a commercial property buyers agent, there are a variety of tasks McNicol does in a day, ranging from researching properties to assisting his clients in purchasing property.

00:36 As the name suggests, I basically specialize in just finding commercial property for my buyers. On a daily basis I'm researching. Then if there's a property I'm interested in, I'll ask for the information memorandum on the potential properties, get in contact with my clients and do a rough “fezee” and then where it's appropriate, we make an offer and basically help the client follow through to a successful purchase of the property.

McNicol specialises across the commercial space, although he does find that most of his clients do tend to focus on retail office accommodation and some on industrial.

01:30 Some of the properties that we've purchased being small shopping centers and things like that. I haven't got so many clients that are interested in some of the more specialized areas of service stations or childcare centers and things like that. So it's really those particular areas that we seem to focus on. And that's driven particularly by our client needs.

And how long have you been in the commercial space for?

02:23 Probably getting close to 20 years now.

Wow. Is there any particular location that you focus on for commercial property?

02:40 I'm licensed in Queensland, New South Wales, in Victoria. So they're the areas that I concentrate on and depending on, again, what the needs of my clients are in terms of the yields that they're after that sometimes dictates a little bit about which state we may look in. And certainly which areas, but normally I try to avoid very regional areas and towns with possibly less than 10,000 population.

McNicol states that commercial property is garnering a lot more interest now that people know the kind of returns it can generate and when working with the client, he tries to figure out what it is they require out of their property purchase, be it a recession-proof tenancy or a high net return.

03:46 I think, particularly with the returns that people are getting on residential in particularly Sydney and Melbourne now, the secrets out just what returns commercial properties can achieve and normally with a lot less hassle involved. So it's really a matter of sitting down with the client, listening to what they require, whether it be long tenancy, I guess the net return, and I also if it's a first time investor, try to find a tenancy that is going to be recession proof. So that was part of the strategy we started out with. So we ended up with doctor surgeries and things like that. And a lot of my clients have self-managed super funds. Sowe've got to be mindful of the requirements of what can be done within the super funds family. How many tendencies they might be and work within those guidelines as well.

For the majority of McNicol's life, although he has traveled and lived in other parts of Australia, he has been based in Brisbane.

05:37 After we were married I went to Townsville and went to James Cook uni up there for awhile. Came back to Brisbane and the University of Queensland. So most of our married life has been in Brisbane. We've had a couple of stints in townsville Hamilton in New Zealand, two stints in Sydney. So the majority of the time has been based in Brisbane.

You mentioned that you went up to Townsville and also you went to University of Queensland as well. What did you study there?

06:18 Commerce in both. Our eldest son was born in Townsville, so I ended up with a job back in Brisbane. So tried to transfer it from James Cook back to UQ.

As part of his career journey, McNicol held a variety of roles during and after he achieved his university degree.

06:56 I started off filling that clerical role and then as I progressed in uni, I ended up with accounting roles. And then together with a couple of other friends, we started up a taxation and financial planning business. So it was very much doing the traditional job type roles. It was only a later when I ended up with a contract with the Queensland government that provided a bit of stability did I really get stuck into the property side of things. We had dabbled a little bit prior to that, but my income from the accounting and setting up the business and having three young children, kind of meant we were restricted in just what we could do with property.

How many years were you within the accounting practice?

08:10 Oh, probably would have been close to 20 years.

Great! Did you deal with different types of businesses or was there a specific type of business that you dealt with?

08:32 We concentrated on mainly small businesses and quite a variety across the across the board in that, also with retirees, people planning to retire, and then seeking advice on where people could place their money. At that stage when people are wanting to get ahead, you suggested negative gearings and going into buying property negatively geared. So that was very much I guess the advice that I'd given people at that time and advice that I followed myself.

After his accounting practice, McNicol moved into more of a contract role, where he went from being in accounting type roles to property consultant, marking his entry into commercial property.

09:35 I'd originally gone in for three months with the Queensland government, successfully completed that. And then a few months later they asked me to come in for six weeks to review a financial management practice manual and basically I said that it left a bit to be desired. They said, okay, well, you know, redo it. That six weeks ended up being close to nineteen years.

10:19 Things changed. Originally it was particularly to do with Aboriginal and Torres Strait Islander councils. Then I had some work to do with disability services Queensland and I gradually moved from the accounting and kind of the internal audited type role for the councils through to more of a property consultant, I guess. We had to go through project services to actually deal with real estate agents and people like that. But I could advise project services as to what our requirements were, what we were prepared to pay and things like that. So probably for about 10 years I was doing that role with office fitouts, office leasing, buying and selling property and that type of stuff. In hindsight, it was quite a valuable area that I ended up in.

But prior to entering into commercial property, McNicol invested in residential, and would buy various types of properties.

11:49 Our first residential was am off-the-plan purchase in Spring Hill in Brisbane, a little one bedroom unit which we furnished and rented out as I guess to executive rentals. And that was quite successful. We then moved on and purchased various properties for either splitting or renovating with the idea of... sometimes it was just buy, renovate, sell. A lot of the properties we purchased were good quality properties in the western suburbs, where we purchased we either moved the house or demolish the house and then split the property and then built. So, we've had quite an array of different residential property developments and things like that as well.

Tyrone Shum: 
McNicol decided to buy a property in New Zealand after the banks did not allow him to proceed when he already had a couple of properties.

13:13 It's got a lot of learning. When we hit the brick wall with the banks in Australia as most people do—once they get a couple of properties, the banks will say, no, you can't proceed any further—we took some money and went to New Zealand, and purchased a little property in a timber town called Tokoroa. It was a little cheapy—I think $20,000 New Zealand dollars—and we purchased that off a couple of marketeers who'd go to New Zealand, basically find property, put an option on it for 90 to a 100 days and then on sell. We purchased that property sight unseen and we also went with the property management that these marketeers that organized. All had gone fairly well for about two years.

14:32 and then the timber mill company staff and our property became vacant. A few months later, we received a letter from the Tokoroa police, suggesting that we needed to do something with our house, which had become vandalized both inside and out, and they'd send some photos over. Basically we managed to sell that one for about 22,000 New Zealand dollars in the condition that it was. So we were fortunate, but we certainly learned some lessons for that. you don't You don't buy things sight unseen. We select our managing agents ourselves, we don't buy in a one industry town or a town with a relatively small population. And I guess they're things that we still abide by today.

Do you remember which year you purchased this, because I just want to try and put things in perspective on how much was 20,000 New Zealand dollars was back then.

15:50 That one possibly would've been back in around about 2002, I think, 2000, 2002, roughly that time period.

So in comparison to say for example, purchasing a property in say Brisbane how much would that have been?

16:15 Probably back then maybe the cheapest we would have been looking at around the 180, 200,000 mark.

Gosh, it was still a massive learning lesson.

16:33 It was, and it meant that we could basically purchase this without having any bank involvement. And the idea was that we would then use that as a stepping stone to go to the bank later on with a unencumbered property that we could then use as collateral for the next property you ever buy in New Zealand.

Upon receiving notice from the police that his property in New Zealand was vandalised, McNicol's felt numb and was quite shocked.

17:18 It raised questions about the property manager. Why they hadn't notified us earlier, what were they doing to actually try and get tenants and all the rest of it. So, it raised a lot of questions. But again, we were over here, that was happening over there, and all we could do was basically sit down and work out a strategy and we decided we wanted out of Tokoroa and that's what we did.

However, there was a silver lining, through purchasing and owning this property.

18:10 We were fortunate. We changed real estate agents, found somebody that was quite proactive and I think the purchaser was the only offer that we had. But I had a rule that I never sell at a loss. And so we had to negotiate a little bit and we were fortunate that they wanted the property and we were successful in not selling at a loss.

19:16 The vandalism side was I guess the smaller part really. It was purchasing sight unseen; when we did go over later on to Tokoroa, there were a few things that we learned even in that site visit which would have been useful in the first place. But you know, it's water under the bridge.

McNicol's parents did invest in property but not to a great extent and McNicol credits his interest more to a successful property investor and speaker.

20:04 My father was an accountant and company secretary, so he spent a lot of time on the share market both for work and in private. So my first inkling for getting ahead was through the share market. My parents at the time were typical, they bought and paid off their own house. I think in the time that they were married, they only had three houses in total. And it was only later on after dad had retired that they actually purchased a unit on the Gold Coast. So it was very much a share market influence. I'd attended a couple of speaking engagements that were being held again back in the 1970s, early 1980s. There wasn't the market of a plethora of people speaking on property. And I was lucky enough to hear one speaker, Peter J. Daniels, he is a multimillionaire from Adelaide, South Australia, and that was possibly the start of the influence on the property ladder.

22:06 What's interesting is that's so true. When you said even back in 1970s and 1980s, we never had that much content as we have in today's time that was spread around plus that many speakers. We didn't even have the internet to be able to access to that. 

So I would assume that everything was sort of on a newspaper. That would have been quite a lengthy time to be able to get the information that you need to make one decision to purchase a residential property or commercial property. Would that be the case?

22:46 It was very much so. And I guess one of the things you learn as an accountant is conservatism. So I spent a lot of time researching, well, asked the librarian, so again, there's the research capabilities there, and we did spend a lot of time looking before we found what we considered was a good property, which was the one in Spring Hill. When I said we bought it off-the-plan, the building was partly a constructed, so it wasn't completely off-the-plan. So we could actually put on a hard hat and walk around and see the layout of the building. And that was a nice little investment and a good first investment for us.

This first property of McNicol's he did sell in order to fund future property purchases.

23:46 It was one that probably provided a nice rental income, but being an apartment, there was nothing that we could actually do. We couldn't subdivided or extend it or do anything like that. We did pretty much as much as we could by furnishing it and renting it out to executive rentals at that stage. I think we ended up with some movie producers or actors or something. They rented it out for quite a number of months. And my kitchen hardly ever got used in the place when they moved out.

McNicol shares with us one of his lightbulb moments, which was when an accountant recommended he diversify his portfolio by getting into commercial properties.

25:18 We probably had about 14 residential properties at that stage. And he said, you should diversify. And at that stage, I don't know very much about commercial properties, so I didn't proceed. But again five years later, I again got told to have a look at commercial property. And this time, because we were hurting financially with the negative gearing, we then looked at commercial, I studied and learned as much about it as I could. And then we proceeded with our first purchase, which was a doctor surgery. It had the potential for a high rise commercial. We'd set parameters for what we're after. So we wanted at least an 8% net return. We're gonna have annual increases. We wanted a good place with options. And we wanted a good tenant. So, the ad for this one originally spoke about being vacant possession, but when you read the fine print, it said that a new lease would be negotiate with the successful purchaser.

26:57 It's probably why it had been sitting there for a little while and nobody had seen it. So we negotiated a new five year lease. We ended up with however eight percent net yield. We had three and a half percent annual increases and we could identify for x different exit strategies on the property. So we proceeded with that purchase and that was basically the “aha” moment for us. And then from there we then started with converting the negative gearing into positive cash flow.

Through commercial property?

27:47 Mainly through commercial property. We did have to sell down some of the residential and we did that strategically. So we identified what were the

27:58 properties hurting us the most, we would then go and maybe do a bit of a quick renovation, splash a bit of paint round or stage it for the selling, put it on the market and then sell. And then we repeated and repeated that a couple of times. So it was a combination of selling the residentials that were hurting us plus purchasing the new commercial properties.

McNicol goes on to share a little bit more about his first commercial property, the doctor's surgery, and why professionals such as doctors and solicitors are good long-term tenants.

28:51 It was one tenant but there were five doctors working

28:59 out of that building plus there were visiting consultants that would come in as well. There was nothing flash. It was in a good location and it had a brand new McDonald's at the end of the street and there were new developments happening next door. So we could see the potential for, for that one.

Tyrone Shum:
Definitely. And that's the thing with commercial it’s nothing's flash or special. A doctor doesn't usually change every year or two, like a tenant would after 12 months in a residential..

29:45 Well, this tenant or this doctor had been there for 17 or 18 years. He owned the building and was selling it because he'd gone into a business venture with somebody else and needed some money. About two years ago, he decided to retire and he then on sold the practice to another doctor that had been there for nine years working with him. So we've got the continuity again of the doctors andpeople knowing their doctors, they know where they are. So normally doctors, solicitors or accountants, once they're established, if they're comfortable where they are and they don't have desires to rapidly expand or to be bought out, normally they're going to be good long-term tenants.

McNicol at one point owned 14 residential properties. Through the process of turning two properties into four or one property into two, by building or moving the house to one side, McNicol was able to acquire this number of residential properties over 10 to 12 years.

00:36 Part of the strategy was that we'd purchased properties that we could split. So we would buy a 810 square meter property and we might move the house to one side. We'd build or maybe sell a vacant block of land. Normally we'd keep at least one of those properties each time. We also, as I said, ventured into New Zealand and the New Zealand market we've been there now for seventeen years. So again, we did the same thing of purchasing properties over there two into four, one into two, things like that. So, it was a combination of a strategy that we had. We didn't actually go out and purchase 14 individual properties, otherwise the bank would have put a stop to it very much sooner; and going into New Zealand also gave us that extra bit of leverage when we went over there, we could actually borrow through the New Zealand banks without making any reference back to our properties in Australia.

Tyrone Shum:
McNicol still maintains some of his residential properties and tells us he has bought an additional three commercial properties in his portfolio.

02:50 When we hit three commercial properties, my wife said we don't need any more. In terms of our lifestyle and the income that we were receiving from those properties, she was correct. So, again, we had a strategy in place that we'd purchased the property, we'd pay down the debt and now we own three properties unencumbered. But that was the impetus to start the commercial property buyer's agency. I still liked purchasing commercial property. I liked finding, I like negotiating. The only way I could do that and keep the peace at home was by setting up the buyer's agency to look for property for other people.

Tyrone Shum:
He shares with us why commercial properties can be better investments than residential properties.

Brian McNicol:
04:37 We've always had our properties, whether it be residential or commercial, managed by a professional property managers, but regardless of who the property managers are, there's always questions. And particularly with the residential, if it's a 6 or a 12 month lease, they're always kind of going to be coming back and saying, do you want to renew for another six months or 12 months? There's always questions about replacing light bulbs because the tenant can't reach the light bulb or whatever. Virtually all those disappear with commercial property. You've got nice long leases, three, five, possibly longer. Normally the tenants are responsible for the repairs and maintenance within the tenancy. Again, it depends on what's actually written in the lease document. But it's normally a very much...you can almost set and forget, but I don't like that terminology because regardless of which property you've got, you can't forget it.

06:03 You've got to be mindful of dates that may come along and just check on that an annual increase has gone through. I've come across a number of properties when I've been searching properties for clients where, particularly ones where they so off managed people have missed passing on an annual increase, I'll always go back from the beginning of the lease or as far back as I can and work my way through to make sure that all of the rent increases have been passed on. And they get a bit surprised when I turn around and say, well there was a rent increase two years ago, didn't get passed on. But it's really a matter of residential property compared with commercial having, I guess, particularly if you've got quite a number of properties, a constant stream of requests from tenants. So to me commercial properties is really the way to go as my wife wants to. So, you know, we're trying to simplify our lives. The commercial properties certainly helps to do that.

Tyrone Shum:
McNicol then goes on to tell us in some more detail what he was looking for in the commercial properties he wanted to purchase.

Brian McNicol:
08:29 We wanted good, long-term tenants. So we looked at the types of tenants that would provide that. And that's where the doctors, solicitors, the accountants state governments or government agencies

08:54 appeared. We also wanted a good net return. We wanted good annual increases. I guess from an accounting point of view, I like knowing that I've got a three or a three and a half percent annual increase coming in rather than trying to figure out what the CPI might be. I also don't like 4 or 5% annual increases because at some stage there will be a review back to market. And the last thing that you want to do is to suddenly have your rental income dropped back to what the market rate may be. So those are the main ones, we also are keen on trying to get a lease document that was a win-win as far as we were concerned and our tenant was concerned because without the tenant being happy and remaining in the building, we'd completely lose our rental income. So you've got to have that right mix.

Tyrone Shum:
He then goes on to give an example of a commercial property that he bought—a small shopping centre—its cost, the net return it provided and its interest rate.

Brian McNicol:
11:24 I think there were six shops in it and we managed to get it for at 1.1 million. That produced...I think it might've been like 8.4%. So that had good leases. Because it had the different tenancies, there was, I guess some security that you weren't relying on one tenant who may then leave. These tenants have been there for, again, a good length of time. The tenant mix had remained pretty much unchanged from the time that the building was built back in the late 1990s. And it was really nothing flash.

13:04 But it provided a net of about $92,000 a year.

Tyrone Shum:
How much deposit would you need to have to put down on that?

Brian McNicol:
13:29 In this particular case it was around about 40%, so probably all up, including various fees and that, it would have been probably close to $550,000.

Tyrone Shum:
What kind of interest rate do you have on this property?

Brian McNicol:
14:18 The interest rate from the bank I think at that stage was just a little bit over 4%.

Tyrone Shum:
So we could say it would be with interest and other costs associated with this property it would be a total of 4.5%?

Brian McNicol:
14:42 This was one I purchased in the self managed Super Fund. They are getting to the stage where probably within about five, seven years they'd be in a situation of being able to draw a pension from the super. And so the idea was they would actually be paying down that particular loan and basically setting themselves up quite nicely for retirement.

Tyrone Shum: 
So when it’s completely paid off with a little capital growth it could provide more than $90,000 a year?

Brian McNicol: 
15:29 It would have probably been around the hundred thousand by the time... there was the annual increases of three and a half percent. So if you're looking say at that over a five year period or seven year period, a hundred odd thousand coming out of the Super Fund, 15% or it'd be tax free to them, depending on their age. So, if they were to work in a job, they'd have to be looking at an income of a $180,000, $200,000 a year to achieve the same type of income.

Tyrone Shum:
A 40% deposit was provided just in regards to this particular client, and that on some occasions with commercial property a 20% deposit is enough for the banks.

Brian McNicol:
16:47 There have been situations with some banks where you, I think with commercial you have been able to just put down a 20% deposit. Probably more common is the 30%. I thinks omewhere between 30 and 40% is fairly common in terms of the deposit required.

Tyrone Shum:
For McNicol, the biggest reason why he got into commercial property was to provide for his retirement and not have to work a hundred hours a week.

Brian McNicol:
17:37 Now that we've established quite a reasonable lifestyle, I now want to try and do the same thing for my clients and help them achieve the type of lifestyle that they desire. So prior to that, when I was working for the government and setting up a business, I was probably working at least a hundred hours a week. Crazy type hours. One time I came back to one of the train stations and couldn't remember where I parked the car or thought I couldn't remember where I park the car, only to find the car had been pinched. So, I was so tired it just didn't dawn on me straight away. But that's what happened.

Tyrone Shum:
From meeting different people in the property business to reading books, McNicol mentions various resources and mentors on his journey, as well as a few books in particular he found especially helpful.

Brian McNicol:
19:13 I've been fortunate. Again, early in the piece, there wasn't a lot. I did join a group called SMR orSuccess Motivation Institute, which provided some motivation for me, but that was mainly comprised of salespeople. And as an accountant, I felt a little bit out of place going along, but that provided some motivation. Then there were other people over that period of time Michael Yardney, there were different people. A lot of different people surfaced. So that was good. But I also found that reading provided a lot of the inspiration, the ideas for me. I like reading and attending property seminars is good, but I did find reading books and being able to highlight, go back and work through a strategy was important for me.

21:06 Probably not one book. I particularly liked some of the old classics such as 'Think and Grow Rich'' by Napoleon Hill and 'How to Win Friends and Influence People' by Dale Carnegie. But there's been other authors, Steven Koby, Jim Rowan; back in probably the late eighties, nineties, there was Hans Jacoby, an Australian author, Paul Clitheroe, Steve McKnight, and I guess the classic would be Robert Kiyosaki.

Tyrone Shum:
When asked what he would say to himself 10 or 20 years ago if he could, McNicol's answer is brief and succinct.

Brian McNicol:
21:58 Buy commercial.

Tyrone Shum:
In the next five years, McNIcol is most excited about his commercial buyer's agency and helping clients achieve their financial dreams and also writing books on commercial investment.

Brian McNicol:
22:22 I've acquired a lot of knowledge over the years and now I see that as a time for giving back. So I'm doing that in a couple of ways. Firstly, is through the commercial buyer's agency side of things. So I want to help my clients basically achieve the lifestyle that they wish for themselves, particularly through the commercial property. And also I'm looking at writing a couple of books, one of which is on commercial property and another one on retirement planning. So that again is just a way of giving back to the community some of the knowledge that I've gained and hopefully people find it useful.

Tyrone Shum:
So you’ve achieved a lot, how much of your success is due to your skill and intelligence and hard work, and how much of it is because of luck?

Brian McNicol:
23:47 I don't believe in luck; skills, intelligence, being able to use other people's skills and knowledge to supplement anything that you lack is important. And if you're using other people's skills, like a buyer's agent, it's always important to make sure that they've got the skills and intelligence that you're lacking. And also they're also licensed if they purchasing property in a particular states, they're licensed in that particular state. Unfortunately there's some cowboys around that might be licensed in one area butgo and purchase in other areas. So it's important to, to stick within the law.

Tyrone Shum:
If you would like to get in touch with Brian McNicol, you can contact him through this method...

Brian MicNicol:
25:04 Probably the best way is our email address, which is cpbuyersagency@gmail.com.

Thank you to Brian McNicol, our guest on this episode of Property Investory.