On The Property Road
Once Satyan Mehra realised the power of property there was no stopping his investment journey and moving into commercial property has only motivated him more, writes Miriam Bell Photography by Stephanie Creagh.
1 April 2020
It’s a long and not very well travelled road, from Punjab in Northern India to a tourist town in the lower part of the South Island. But it’s the road that millennial property investor Satyan Mehra has taken to make his way in the world. And it’s also the road that has helped him to build up his diverse, multisector portfolio.
Prior to his arrival in New Zealand as an 18-year-old student, Mehra had no knowledge of the possibilities inherent in property investment – and, therefore, no goals to pursue it. But it didn’t take long for his eyes to be opened and his plans to change.
Once that happened, there was no stopping him. Although he first focused on residential property, along the way he has become a keen proponent of commercial property. Now, thirteen years down the track Mehra has a portfolio made up of 12 residential properties and five commercial properties. Additionally, he is near to closing his biggest commercial deal yet.
Game Changing Realisation
Originally, Mehra came to New Zealand to study finance and accounting at Auckland University of Technology. While studying, he got a job at BNZ in the contact centre. After six years in various different roles with BNZ, including personal lending, he then went on to work in business banking at ANZ.
Working in the bank was a gamechanger for him, he says. “It was the first time that I realised how you could utilise lending and it could be a good thing. Loans for housing were not common where I come from. You just don’t buy houses like that in India: if you can’t pay for it upfront, you don’t buy it. So it was eye-opening. It was then that I decided I wanted to get into property.”
This dream was given added impetus by the cost of renting a place to live and his reluctance to pay someone else’s mortgage. Having made up his mind, he acted quickly. At just 19, he found a property he wanted to buy and convinced his father to lend him a deposit of around $100,000.
“It was a two-bedroom unit in Sandringham and it cost $335,000. The price was above its CV of $295,000 and because it was over the CV, it took a lot of work to get a lender on board. But I managed it in the end. And when I eventually sold it a couple of years ago, the value had increased to the point that I did very well out of it.”
Following his first purchase, Mehra built up a significant residential portfolio by leveraging his equity gains. These days he has 12 residential properties, all in central Auckland suburbs. Along the way he stretched his entrepreneurial wings beyond property investment: he acquired four Pizza Hutt franchises, which he held for nine years, as well as some childcare centres.
Commercial Building Blocks
While residential property has always served him well, commercial property started to pique his interest way back in 2012.
“At the time, I had a Pizza Hut franchise in Cambridge. I was naïve and when I had a small maintenance issue I emailed the landlord. You can imagine the response! I couldn’t believe the differences between a commercial tenant – what they have to pay for, are responsible for - and a residential tenant.”
That’s when he started learning all that he could about commercial property, including what can go wrong. But he didn’t start looking for his first property until 2015, and then he took his time with it. The risks involved, as well as NBS issues, did worry him, Mehra says.
“I wanted to have a good understanding of it all before buying. Also, I needed to be in a strong financial position and have a good 40% deposit. And I wanted to make sure that when I did get my first property I could afford to pay the loan repayments if it was vacant for a while.”
Eventually, he found a property in the Waikato which ticked all the boxes. It was a retail property with four strong tenancies. It cost $630,000, had a 5% return and the leases were recently renewed. After a couple of friends agreed to go in on the venture with him, he put an offer in right away.
“It was a multi-offer situation. So to make our offer attractive, I said that if they gave us five days for due diligence then we’d settle. I think that was the magic charm for us,” he says. “It worked and in that time we got the loans sorted and did comprehensive due diligence.”
Mehra’s Commercial Portfolio
• A multi-unit, retail block in the Waikato. It has 670m2 floor area and four tenancies. Purchased in 2016 in the low $600,000s. It was Mehra’s first commercial property investment and remains his favourite.
After renegotiating the leases and doing some fix-up work, it has recently been revalued. It is now worth well over $1.1million and has a net yield of 10%+ (on the original purchase price).
• Two retail shops in the Waikato, which Mehra purchased with a friend. They have a combined floor area of approximately 190m2 and two tenancies. Mehra bought them in 2018 for a price in the low $500,000s. They are now worth over $600,000. Current yield based on the purchase price is over 6%.
• A 229m2 retail property in Mt Albert in Auckland. The leasehold property has two tenancies, one of which is a Pizza Hut. With 27 more years on the lease, its current value is estimated at around $300,000 and has a net double-digit yield of around 10%.
• One 166 sqm unit, with three car parks, in a Mt Eden (Auckland) office block which has an NBS of 100%. Mehra bought the unit for $750,000 in 2019 and it is home to his mortgage advice business, iConsult.
There was an issue with the NBS rating but it was manageable. More importantly, after looking at the leases and the town, Mehra figured out that the property was under-valued with scope to gain value.
“We bought it in late 2016. About six months in, my friends decided to sell their share of the property. So I bought them out to become the sole owner and there was a small gain on the property.
When it was time for a rent review, the rents doubled but three of my four tenants renewed their leases.
“It took a few months to get a replacement tenant, but when I did they were keen to spend money to refit their space. That lifted the value of the property considerably. When this process was complete, the property was re-valued and it was worth around $400,000 more.”
He enjoyed the whole journey and learning about everything involved, from negotiation to how to do rent reviews.
“Not only did it sow the seed for me, it meant I had the funds to invest in more commercial property. That first property ended up being a strong foundation for my commercial portfolio.”
Learning Through Challenges
Since that first investment, Mehra has acquired four more commercial properties, three retail and one office, and is currently working to settle on the biggest deal of his investing career, which is a motel complex in the South Island. Of the four he now owns, two are also in the Waikato and the other two are in Auckland.
The more he invests in commercial, the more he learns about the sector. Compared to residential, it has many advantages but it’s a bit risky, so it is necessary to understand it, he explains.
That’s left him with a preference for retail properties and properties that are not purpose-built. “Such properties mean it is easier and quicker to fill a tenancy and that means less vacancy concerns.”
Overall, his journey has been smooth sailing, although there have been some challenges along the way. These have predominantly related to financial arrangements, but his biggest issue has been due to one of his Auckland properties being a leasehold property.
“Buying it wasn’t a mistake. It was a very considered decision as one of my Pizza Hut franchises was the tenant and the landlord was difficult. But if I had had a good landlord, would I still have bought it? Probably not. It was purchased more as a necessity, but it’s done OK in terms of money.”
‘You have to be resilient and put in lots of hard work. But, compared to residential, the problems are minimal’
There’s always challenges, Mehra says. “You have to be resilient and put in lots of hard work. But, compared to residential, the problems are minimal. One thing to be aware of though is that it is harder to replace tenancies and, if there is no rent money to cover vacancy periods, it can be difficult.”
It also pays to be aware that conducting comprehensive due diligence on all deals is critically important. For example, he has spent over $20,000 doing due diligence on the deal he has under negotiation at the moment.
“So if it doesn’t work out that’s a big expense and that can be an issue. On the other hand, if you get everything right it is an expensive process but it can bear fruit if you do it well. Also, if there is something you find that doesn’t stack up in due diligence, don’t be afraid to walk away.”
Going forward, Mehra plans to continue investing in commercial as property is a passion for him and he believes there is still growth prospects in the market.
“Ultimately, all businesses need a place to rent to do business. As with residential property, commercial propertyis always in demand. That never changes. In retail, even if everything goes online, industrial property is still needed for storage, packing and distribution.”
However, some types of commercial properties are at risk due to changing business trends, he says. “For example, think about petroleum – what if everything does go electric? Properties like service stations could negatively affected. Commercial property goes in line with the business segment it serves in terms of performance so, when investing, it’s necessary to take that into account.”
On a personal level, once Mehra has finalised his South Island deal, he plans to keep building his portfolio, ensuring it is well balanced between commercial and residential.
“My goal is sustainability and holding quality properties over the longer term. I want to be able to benefit from the cashflow and take early retirement. I have a number in mind and I’m focused on achieving that.”
He also wants to help as many people into property as possible. “Whether it is through sharing my experiences or through my mortgage business, iConsult. A number of people did that for me and I want to do the same for others.”
Top Tips For Commercial Investors
• Find undervalued properties, do your due diligence and, if there’s an upside you can utilise over the next two to three years, buy it.
• A successful commercial investment is very much about its location. High yields are good but a great location is more important in the end. Because it means it is more likely to stay tenanted, the rent will keep coming in and that makes for a more peaceful sleep.
• Check out new build properties.
• It is critical to do extremely comprehensive due diligence which covers leases, tenants and their business, NBS rating, the area going forward, and so on.
• Understand your finances. Remember with commercial it is harder to get finance and you need to renew loan terms more often. Also, be aware of capital expenditure from landlord point of view because things like roofs can be pricey.
• As a commercial landlord, you don’t have to do much but it is good to be helpful and collaborative with your tenants.