Forum Replies Created
We continue to hold a prime riverfront block with a small 3 x 1 house on it. 5km from Perth CBD. It is a very negative cashflow situation.
With the residential tenant who whinges only slightly, I still think about selling it every day.
It needs to grow by 3.4% p.a. compounded for us to break even. It did about 6% last year. I’m still not happy with this, but as we have bugger all equity in it, there is no equity advantage in selling it.
Cashflow wise, this one prop is a big factor in keeping me overseas and away from the family…it’s averaged 15.8% compounded over the past 25 years, so I’m thinking there are better times ahead….who knows…maybe Foundation is right ??
Hi guys, thanks for your kind thoughts.
Yes Don & Liz, you are right, these lawyers were definitely acting in their clients interests. They were certainly following their clients instructions…no harm in trying as you say. Having rejected their pleas and quasi-threats to walk away from the deal, I feel I have stood on equal footing with them. One needs to be prepared to sacrifice the lot though, and stand at the edge of the cliff to go toe to toe with these boys.
The surprising thing for me before the signing took place, I learnt that the owner of the business, who signed on behalf of the Lessee and also was the Personal Guarantor to the Lease…did not even read it. I turned and asked the General Manager of the Lessee (who used to sell commercial real estate) if he had thororughly read the Lease and been advising the Owner. He also said no, he hadn’t specifically read the document, but was sure that everything was OK….I nearly fell off the perch. The only person from their side who had read the document thoroughly was their lawyer, who wasn’t at the signing.
As it turned out, their lawyer had slipped in a clause in something like section 9.2.(d) (ii) that wasn’t agreed prior. It said that the Lessor (me) was responsible for maintaining the lawns and gardens and general look of the property. I quickly scrubbed all of that nonsense out and we both initialled off to recognise the Lessee was responsible for all of that. I asked him how that slipped there, and he was most embarrassed saying naturally of course the tenant would take care of that and never expect me to look after it. Damn straight I wouldn’t. He went a bit red, knowing that he had been caught out.
The tenant thought he got a bargain out of me, with a big warehouse and plenty of laydown area for his trucks and storage facilities. I think I got a bargain having a national tenant in their paying all of my outgoings, spending 60K doing renovations on my prop. and paying a nett rent that more than covers my 100% finance interest bill in the first year.
Win-Win….I like it.
The only thing I don’t understand is why these companies simply don’t purchase the warehouse themselves, and not subject themselves to all of the onerous conditions imposed on them as tenants ?? Mine is not to question this however, as it is fundamental to my property strategy.
Hi Margaret,
I can only offer you generalist type suggestions given the info provided, so here goes ;
1. Highly recommend with your first foray in CIP’s to purchase a “going concern”, where the prop. has a good paying tenant in situ. Buying a building and then looking for tenants whilst paying holding costs really is jumping in the deep end.
2. Why are the vendors selling. Most CIP Lessor’s if they can’t find a tenant put it up for sale. When the prop. is tenanted under a good lease there is very little motivation for the Lessor to sell.
3. If I know nothing else about a market, I use a cap. rate of 8% to work out the price of a prop. However, you are in the unfortunate position of not even knowing what the prop. will command on a nett rental basis. So many things are thrown into this melting pot to arrive at a 8% figure, it can be spot on, or it could be woefully inaccurate. One needs to do in depth due diligence before treading these waters.
4. Why do you need an expert to write a Lease ?? I just finished writing one and I am by no means an expert. I am reminded of an expert being someone who is slightly more knowledgeable than yourself in some particular area.
5. I’ve found though, for about $ 1,500 one can have a standard comm. lease drawn up….pretty expensive for a 40 page word document that could be emailed for free….but then lawyers have expensive portfolio’s that they need you to support.
6. The clause in our lease places the cost of the lease being drawn up on the Lessee. Nice one. Residential tenants won’t cop this, or any cost as usual…probably why you are looking.
7. We found a big 6′ x 4′ coloured sign ($220 for 6 months and looks smicko) and small ads in the paper did marvellously well. Business people wanting to lease your premises scour every where for good business premises to start up. They will find you.
8. Get out you tape measure and triple check all of the sqm figures. CIP’s live and die by the NLA (Nett Lettable Area). You don’t want to be diddled out of 10 sqm….the onus is on you to check this. You can bet the REA hasn’t checked it. Little infra – red survey thingoes are invaluable for accurately determining this.
As a final comment, really have a look at your particular market…have you got most of your info from the selling agent or not. I’ve found over time that you know the property and what it can really achieve for you when the agent cannot tell you anything about the prop. that you don’t already know. Verify everything they say with independent checks of your own. They don’t legally stand behind what they are verbally telling you….note the fine print at the bottom of the brochures.
Once again, why not go with something that is already tenanted and whet your appetite with this before taking on something more substantial.
Good luck Margaret.
Update….
I have just returned from the warehouse and have two signed and executed copies of the lease in my hot little hand. Both the tenant and ourselves are extremely happy with the way things turned out…probably because the lawyer wasn’t there to stuff everything up.
Well, that’s that property all signed up and out of our hair for the next 6 years. CF+ve in the first year on a 100% lend basis, and will become more so as the years tick by.
This is a massive turnaround from the rusty shed we bought 5 months ago with a recalcitrant tenant that hadn’t paid rent to the previous Landlord for 6 months and had left 3 dead trucks and 28 tonnes worth of rubbish for me to pick up. All of that has now gone and we are on relatively easy street.
Writing the 40 page lease document myself and going head to head with the tenant’s solicitor has been marvellous experience and shall stand our group in good stead for the next 70 years of our investing career.
We have our Banker coming around to see us on Monday morning to discuss another 100% loan for the offices and warehouses next door to our warehouses. Metro CF+ve landbanking….it doesn’t get any better….
We intend on getting completely blotto tonight on cheap champagne to celebrate !!!! Yippee. Hope you all have a great weekend.
Cheers folks,
Hiya mkofsky,
I saw the result of what you are proposing about 15 years ago before I had got into the prop. market.
My elder sister was going out with a nice young Polish boy. He was one of 4 also. His Polish parents had the same ambition as yourself and had achieved it. When the son was 21 they issued him with the title deeds of the prop, a 4×2 B/T house in Willetton (a suburb of Perth).
He immediately took the deed into the bank and mortgaged it to the hilt to purchase 3 more props. By the time he was 28 he had about 30 under his belt and never looked back. My sister eventually broke up with him mysteriously….which we all thought was a bit weird, and married someone else who was dirt poor.
One of the main reasons we found out years later was that my sister wanted to (rightly in my opinion) make her own way. Hitching up with someone who received such a massive boost from the parents and subsequently used it wisely, which magnified the boost enormously….simply drove a wedge between them. She never felt a part of the ’empire’.
Funny how good intentions, when mixed with human emotions, can sometimes turn out differently to that which you expect.
We live across the street from one of the other brothers, and he has also benefited enormously (economically) from his parents gift. There was no animosity between the siblings re: who got what and whether one was slightly better than the other.
I always thought the Scottish had the upper hand on frugality….perhaps the Polish are the dark horse.
Any chance that, with a name like ‘mkofsky’ you are Polish as well ??
1. She’s moving out to get more room for the baby…flip.
2. Her circumstances have changed….double flip.
3. Wants an A/C for the baby…double flip with a half turn pike.Ummm, what happened – did she get rid of the baby for a while and now the baby is back again ??
This is exactly why we don’t invest in this type of prop. Being forced to swim through strangers personal ‘comings and goings’, with your financial wellbeing hingeing on their personal decisions which you having zip control over.
We found going around and making whinging ressy tenants a nice cup of cocoa and tucking them in at night calmed them down somewhat.
Shelley, is your investment looking after you, or are you looking after your investment. Did you make any money during her 6 month lease ??
I’d put the A/C in, ask her to sign a 3 year lease at a 7% nett rental return, with regular escalation clauses. Palm all property outgoings off on her as well. You know what the answer is going to be….so do we….hence why we leave this carry on to Landlords who have spare money and time to deal with it all.
Hi Redwing,
We rent out our 3 bedroom beach shack as fully furnished.
Everything is provided except the linen…not good cleaning up after other people’s “activities”…strongly advise not to go down that path.
The furniture is literally a dumping ground of our ‘seconds’, but unlike the city, people have a lower expectation when they go there. We have all brand spanking new white goods…good depreciation and cuts down on the whinging factor.
If you can secure a long termer in there, and charge them above market rates – I think you may be onto a winner there.
Having been beaten around the head and shoulders with the Ugly Stick, my Avatar bears not a jot to my resemblance.
I thought I’d pick the handsome chap as a sort of reverse double flip with a half twist ?? Was thinking of having a real “girlie girl” Avatar, but I thought it’d just confuse people too much. I’ve noticed most people pick the same gender as themselves.
Still….gotta be better than ol’ Simon….geez…he is so ugly no Avatar is willing to stick to his logo. [biggrin]
Hey Xenia, are you planning on doing another Doctorate on psychological analysis of Avatar preferences ???
Clones,
Here we go again…
I reckon at least half of your postings have attached doom and gloom stories from “experts”.
I also reckon that if you spent half the time hunting down excellent investment properties that really ZING, as you do hunting down gloomy predictions from “experts”, you’d be well on your way.
You can’t spot juicy little morsels to consume when you are flying up there with eagles 4 miles up. However, while you are up there, have a detailed look around and really check out the qualifications of these “expert eagles” you are constantly quoting and listening to. Maybe – just maybe, some, not all, are little 22 yr old journo’s on 35K p.a. with no property experience at all.
To directly answer your question…”should I invest in the property market”…no…I think you should stay well out of it. I’m getting the impression you don’t have what it takes to tough it out and extract a fantastic return.
What’s the diff when the snarling dogs are snapping at your heals ??
Regarding the Telemarketers from India.You have to remember that they get paid less than 2 dollars an hour and can hardly afford to put food in there families stomachs and have a roof over there heads.
So next time you decide to be rude to these people because they called you during dinner, just remember that they probably can’t afford to eat dinner that night.
Daniel
Oh, dry your eyes Danny….you obviously know nothing about the real situation if you fell for that sob story.
Asking for an irrelevant Madras curry recipe when being asked to listen to an equally irrelevant sales pitch is in no way rude. Once again NO is a very powerful word.
If you are so concerned about the plight of the average Indian citizen, I suggest you get cracking and start helping them. With 1.1 billion people, I hope you have deep pockets.
Bottom line, don’t sit in your comfy western culture and think you know anything of the real situation over in non-western cultured countries.
Seeing as though you’ve put this article in the Help needed section, what help exactly are you seeking ??
Hey furnz, you probably are on the right track…it’s just there are many lanes on the track…do you reckon you are in lane 1 or maybe out in lanes 7 or 8 ?? Better to be on the track at least – hey.
There are many ways to make money in RE, I am certainly not advocating you are doing badly. Who knows, you may be receiving 35% growth on your IP’s and making a killing for all we know.
Do you mean you’ll convert your loans to IO shortly ??
I’d love to receive a tax refund of 5K, but then I thought that just meant you’ve paid the ATO 5K too much over the previous fin. yr.
Cheers,
Darryl Moore
“No point having a cake if you can’t eat it.”
Hi furnz,
Your current situation is totally unknown as you haven’t provided critical input.
What it will look like after your proposed changes looks a bit like this from where I sit….which is pretty foggy as the details you’ve provided…once again…are real thin…
Gross rents (best case scenario) = $ 33.5K p.a.
Interest only at say 7% on $ 440K = $ 30.8K p.a.
All other costs to hold = lots….only you know this.
Even after your suggested changes to improve your situation, the cashflow is still very negative, despite holding 220K equity in the props. I shudder to think how much is currently being bled out. I think that good steady income of yours better not falter.
As a general philosophy, surely transferring the investment loans to IO would be a good first step….but it looks like you’ve got a few more steps to take to get onto the ‘good track’.
Perhaps sit down and plug in all of the numbers to work out your breakeven cost, and therefore work out how much you require props to appreciate just so that you break even with your portfolio.
Cheers,
Darryl Moore
“No point having a cake if you can’t eat it.”
Are there any council laws, to be able to do this? I won’t be living there myself.Hi Solomon,
I imagine after those fires in Queensland in the past couple of years where many backpackers and other ‘single room renters’ died, the council regulations controlling that type of accomodation have been tightened up enormously.
You’ll need to go through them with an absolute fine tooth comb…as you can bet the insurance co. lawyers surely will. You’ll only need to slip up or not fully comply on one of those tiny details stipulated by council and your claim against any damage (big or small) if an incident occurs will be totally rejected. Your premiums will also be thru the roof.
Compliance with all of the HSE regs is going to be onerous to say the least, for your capital injected, cashflow and time.
If you intend not living there yourself, then management of the 9 separate individuals and all of the ‘human interaction’ problems that most definitiely will occur will also be onerous. An absent PM will not be able to control that situation effectively – despite charging you alot out of your gross rents received.
From a growth point of view, what value is the block of land as a % of the asking price ??
Looking at alternatives of what you could put your money into…I’d be in the ‘minefield’ camp.
Cheers,
Darryl Moore
“No point having a cake if you can’t eat it.”
This comparison of course assumes that one has a mortgage.
Buying some dodgy little hovel for 70 or 80K as your first PPoR and paying cash on the nose may affect things a tad.
There’s so many assumptions to that article it makes it almost impossible to take it seriously.
I’m of the opinion 20 yr olds just starting out in their financial life, trying to eke out an existence, and being advised to pour most of their hard earned into an investment which effectively locks it up for the next 45 years may not be the best plan. Look how much the ‘rules’ governing super have changed since 1980…that’s only 25 yrs….I think it would fill a book 5″ thick. What’s going to happen over the next 45 yrs ??
I’d rather have control over a 4% return, then be locked out for 45 yrs and have no control over a 11% return. Oh, and where’d this 11% come from ??
Getting 100% on red over 2 minutes on the roulette wheel is also a cracking good return…plus fees during that 2 minutes are relatively low…but this doesn’t mean it’s better than buying a house either.
Cheers,
Darryl Moore
“No point having a cake if you can’t eat it.”
Hey Bob,
Unless you or your target market have little kids, my belief is that the bath is a complete waste of space and should be turfed out altogether. Many people I’ve spoken to where the youngest in the family is above about 5…the bath becomes a bit of a white elephant.
My choice would be just to have a shower only. Spend the extra money saved and space saved jazzing up the rest of the bathroom with a snazzy shower. Maybe a big dualhead shower, one either end of a long rectangular spaced shower.
But then, I don’t know what your intent is with the reno.
Cheers,
Darryl Moore
“No point having a cake if you can’t eat it.”
Of late we have been receiving tele-marketing calls from India. This is classic for me ‘cos I deal with TCN’s all the time at work.
When they try and convince me to buy whatever it is they are flogging, I insist that they go through the ingredients….one by one….for a good traditional Madras curry.
They normally just hang up themselves….good for a little destress session and you don’t feel guilty ‘cos they hung up – not you…not that I feel guilty from hanging up mind you…but if they are paying for the call, what’s wrong with a culinary chat I say ??
trick is – play the game – have some fun….whatever you do don’t let them wind you up…they’ve been trained like to handle that and fend off any and all of your jibes.
D&L…haven’t heard the word ‘cack’ for about 20 years….and don’t think I’ve ever read it. Nice to see some Ozzy slang, instead of all that American drivel.
Cheers,
Darryl Moore
“No point having a cake if you can’t eat it.”
Hi LFA,
We set up a different co and different trust for each title of land purchased. That way there is supposedly reduced risk of legal exposure if something goes wrong with a prop in the trust. The rest are isolated from the problem….or so they say…I’ve never had to test the lawyer’s advice in a vicious court battle. Anshallah !!! That doesn’t relieve our responsibility of ensuring the debt is covered and by George the Bank fully let’s us know it.
In terms of guarantees, I reckon you’ll be pushing fertiliser up hill to receive a substantial loan from an institution via $2 co setup without standing behind the debt.
Sometimes putting on Mr Bank’s hat can help alot “Oh, here’s another customer who wants our money, but not prepared to give us any security.” Says the boss…”No worries, just chuck his application straight in the bin.”
If you think this is reasonable in not giving guarantees, I sure could do with a loan…as much as you can give me actually, as long as you were prepared to fork it all over with just my $2 co as security.
If you are happy with that…I’ll very much look forward to the free money, if you’re not happy and wouldn’t be willing to give me the money, then I think you’ve pretty much answered your own question.
— By the way, I changed the title of your thread to something more appropriate —
Cheers,
Darryl Moore
“No point having a cake if you can’t eat it.”
I agree Redwing….looks almost identical….these agencies wiping the noses of tenants must talk to one another.
What an absolutely disgraceful set of rules that one must abide by. It’s conditions such as those and then some ;
“A Landlord must not….”insert good thing”…”
“A tenant may….”insert bad thing”….”
This would have to be one of the major reasons why we went away from RIP’s. Having broken away, it is absolutely fantastic not to be hamstrung by such one sided Acts.
Don…make a decision – who are you dealing with, a friend or a tenant ?? To my mind you can’t have both.
Cheers,
Darryl Moore
“No point having a cake if you can’t eat it.”
