Forum Replies Created
Best – the deal we settled on yesterday – 2 acres in Perth for less than land value and +CF to boot.
Worst – our first residential IP which was bought for the good area and the “feel” of the suburb…wanted to get CBA shares instead at $ 7-00 each instead, but went down the house route and lost massively in comparison because of it.
Advice – talk to older more experienced investors who have a keen memory for figures.
Book – Noel Whittaker for starting me off and Jan Somers for continuing it on. However, I’ve found the books too general in their advice to be really useful. Chatting with elfderly gentlemen about nitty gritty specifics has been far more valuable than any book available. They also get straight into the meat without going down the “This is how you set up a budget” dross for beginners.
Tips Only buy IP’s that have large land content and are self funding. Also, get close to your finance source – they are crucial to your success – do not allow brokers to get in the way of your relationship – in the end you’ll definitely get better deals than going via the brokers.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Well….the big day came and went.
Settlement on the 2 acres went through yesterday without a hitch and some of the national tenants have already paid their rents.
Bank got cold feet in the end and backed off from a 5 yr fixed rate loan and offered a 1 yr fixed rate instead. Said we had to prove ourselves and sign up national tenants under a 10 yr lease with at least 1 x 5 yr option for them to extend finance beyond the first year – so I guess the ball is well and truly in our court.
Got temporarily tripped up with these rolling bank bill structures and “Net proceeds” as opposed to the gross loan figure….another learning point under the belt now. Didn’t cost us anything, but the mechanism is real squirrelly, and totally in the Bank’s favour as you’d imagine.
Negotiating this morning with the Lessee’s Directors over in Sydney to take over the whole property under one whopping big lease. This is daunting stuff, but what a learning curve. We have all the facts and figures to go off, so not flying by the seat of our pants.
I’m just glad they can’t see how young we are. Phone and email are great. I think these 60 yr old men would write us off if they knew how young we were talking these numbers.
The Bank valuation came in with his report, it was $ 140K higher than the contract price, so we and the bank were very happy…they all said that didn’t happen too often. Getting a +CF property for less than land value is nice.
Anyway, onwards and upwards…
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Martin,
As stated privately, the return is too low – the Sellers are asking way too much at 1.5 MM. Try more like $ 800 K. Else, move on to the next one.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Yes Redwing – just a tad.
No paperwork at all, lots of cash under the counter, beer jobs, bartering and verbal agreements.
A few of the smarter ones are just starting to realise that because nothing is written down they can’t prove anything and are now having trouble with me as their Landlord and the ATO with their returns.
The few who flat refuse to pay any rent, and I’ve since learnt weren’t paying rent previously are best to just move on…tonnes of rubbish to shift though, so not as easy done as said.
We’ll get there…., back to the original question, anyone have any idea of what you actually buy when you buy a place, and what the tenant is allowed to tear down, even if they did pay to put it up years ago ???
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
I’ve just finished watching the “Grumpy old men” series on the ABC and funnily enough I agreed with almost everything they said.
Good to laugh at yourself though – keeps the Fun Gestapo – read lawyers and social engineers – on their toes.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Jeff,
As with everything else on the property – it is either dodgy as all hell or old and clapped out. Building inspector found many faults, with many structures erected with no council approval and as usual, a bit of a wink and a nod from the owner, a carton of beer passed for the favour and a “she’ll be right attitude” overall.
A new development would definitely be less hassle, without a doubt, but then what type of return should I expect when for absolutely not a cent I can extract 16% ?? To make it worthwhile it’d have to be up into the 30’s…which I think might be pushing it a bit.
I’m happy to put up with some of the hassles, but I need to know exactly where I stand legally when “sternly chatting” with these guys. I’ve noticed when a wrong assumption has been left to fester for year upon year, it eventually turns into law and fact…this is what I am trying to turn around.
On the bright side, after 9 years of neglect and sloppiness, we’ve turned 1/6th of the property around in 3 weeks…by that timeframe we should have the other 5 stitched up in a couple of months, with a commensurate rise in property value with the locked in executed leases.
I think we’ve taken on one of Steve’s “problems and solutions” type places….
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
No problem Leigh,
In my opinion the property has 3 aspects to it’s value.
Land value
Buildings erected thereon
Existing tenantLet’s say the prop is listed for sale with an asking price of $ 1 MM.
Bare block of land is worth 850K (85% of list price)
Buildings are worth 70K
Lessee on a 5 yr lease paying 70K p.a.This would be a prop that would qualify just and we’d be interested in looking at it.
Or, something like;
Bare block of land is worth 600K (60% of list price)
Buildings are worth 200K
Lessee on a 5 yr lease paying 110K p.a.This would also be a prop that would qualify our criteria and we’d be interested in looking at it.
Make sense ??
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Wayne,
Have absolutely no idea if your figures are correct or not…they very well could be.
However, I know from doing a moderate amount of research, finding those ~ 0.0004% of properties that do qualify for our criteria takes about 30 to 50 hours of surfing the net and talking to agents / vendors.
Last week I posted half of our research list that was the ‘second pickings’ after our purchase went ahead.
The trick is to ignore the 99.99% of deals that instantly won’t cut the mustard and then narrow in from there.
Just checking this morning, there are still 8 properties on our previous full list still for sale today that are all over 10% nett yield. Land content ranges from about 34% up to about 59%, not high enough for us, but suffice to say they are all out there. [blush2]
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Depends on the level of land content vs list price.
If the land is more than 85% of the list price – at least 7% nett.
If the land content is less than 85% of the list price – at least 10% nett.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Martin,
I wouldn’t ask the Seller’s representative anything…my experience has been that you won’t get a response that you can legally rely upon, and if you read the extremely fine print, you’ll find that anything that the Seller or his representatives says, they are not bound by it.
As you’ve said, it’s your Due Diligence, don’t sit back and be spoonfed by the person trying to extract the maximum amount of cash from you.
1. Read the lease. Make sure it’s an official signed off copy with all subsequent amendments and details…you wouldn’t be the first to be handed not a full and true copy.
2. Read the lease again..and again…and again. The tenant will know it backwards, you will need to as well. Make sure you know exactly what it contains and what your rights and responsibilities are within it as Lessor.
3. Check titles office, and local councils.
4. Do your usual structural checks
5. Be careful of warrants and memorandums and caveats placed on the title. All valuers state that their valuation is subject to a clear title.
6. Do your cashflow projections based on what is signed off on the lease.
7. Decide if you want to proceed.Good luck with it all.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
If your intent is to stay in your PPOR for a significant amount of time, I would use the excess cash to pay down the non-tax deductible debts (NTDD).
One of our fundamentals in the past was to carry zero NTDD…it served us well, and still does.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
I think his termonolgy was ;
“I’m going to pack up and p*ss off, effective immediately”
I’ll sit down with big John and get all the details and contacts off him, he’ll probably end up doing the lot for us.
Then we’ll go through it all and make a gameplan when I get home…see ya soon.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Scotty,
Not a prop pro yet, but working towards that goal, as we all are I suppose…
I’d be looking for props that have a large land component – over 85% of the list price, and cashflow positive to boot – so that you don’t have to chip in.
That way, you get the maximum amount of growth from the land and you get it for free.
Hard to find – yes, impossible – no. Anyway, that’s what I’m doing at the moment and it seems to be working pretty good. Best thing about the strategy is it works on both up and down markets.
It’s not all beer and skittles though. There is bookoo organising and arranging things with tenants / contracts / leases etc.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Marc,
We had something similar with our very first residential IP.
We had the standard locks on – tenant got broken into and more than $ 2K worth of their belongings got stolen. Damage for us was about $ 40…didn’t claim on insurance as it was small. Tenant claimed on their insurance policy also…happy days.
Request came in immediately from the tenants to beef up security. We were young and inexperienced, readily said yes, no problem, whatever we can do to help out.
Installed new security measures at our total expense of $ 900…tenant chipped in nothing – citing it would enhance our property value (she was a PM for an unrelated firm, and we were slightly intimidated by her position – (I laugh now looking back).
Anyway, I digress….
The thieves left it about 6 weeks, until they knew all of the tenants gear had been replaced by new appliances. Came back again, exact same scenario, broke in via the same method and stole all their gear again.
This time however, whilst stealing the tenants $ 2K worth of appliances, had done about $ 700 worth of damage getting into the place. This time we had to claim on our insurance policy and our premium the subsequent year went up.
Tenant formed the opinion the area was bad (it wasn’t – quite upmarket in fact) and our particular house was prone to burglaries and nothing could help. They moved out and we were left standing there wondering what had hit us…a tad daunting when you are first starting up.
How did we eventually fully and permanently rectify this type of situation ?? There is really only one solution. Don’t own little residential units which attract tenants like this. You are fighting the RTA and as a Landlord, you are on a losing streak.
Good luck Marc…hey, by the way, how did your daughter go up in FNQ with her tenant problems ??
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Maria,
This has been covered many times before, have a flick through the search function.
The formula is X x Y = XY, which everyone learns in Year 8….it’s not new.
Work out want you want for XY and go from there.
If you want $ 1,500 p.w. to live off, and each house produces $ 20 p.w. free cashflow, you’ll only need to own and manage 75 houses…sound attractive ??
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Marisa,
Everything in life is relative. What’s expensive for one party is too small to bother for the next. No point comparing…just chug along at your own pace and be happy in life.
I read somewhere during the Burswood takeover a couple of years back, Packer via PBL managed to acquire a large chunk of very central real estate as part of the deal of taking over the casino. They paid nothing extra for it, and it was independently valued at over $ 150MM…not bad as something thrown in for free – a tad more than the usual set of steak knives.
Bit disheartening when people work all their lives to accumulate something worth less than 1% of what the Packers got for free.
It’s an extreme example, but illustrates my point comparing numbers between different parties is fruitless.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
No worries Redwing,
We are out of the buying market just at present so happy to share some figures of some of the deals I was looking at (some since sold) ;
Deal 1 : Cheapy for 89K list price. Nett rent 12K. Tenant pays all outgoings. 2 yr lease with a 2 yr option. Posted this deal before on here.
Deal 2 : State Govt block for $ 3.7MM list price. Nett rent of 377K. Govt pays all outgoings. 6 yr lease…didn’t go down this track so didn’t find out about options.
Deal 3 : National tenant on a green title prop for 2.3MM. Nett rent 243K, with an escalation to 256K in 18 months time. Tenant pays all outgoings. 3 yrs left on a 15 year lease (came close to taking this one).
Deal 4 : Fully tenanted office block – list price $65MM. Nett rent 9MM. Tenants pay all outgoings. Various lease terms. Too big for me but nice to dream I suppose. Maybe in a couple of years…the figures seem to get better the higher up you go…I’m told the air is pretty thin up there and the competition is even thinner.
Deal 5 : Sole tenanted warehouse with national tenant on excellent 3/4 acre block very close to CBD. Rent 524K p.a. with a 4% escalation clause over the next 10 yrs. 705K p.a. rent in yr ten. EOI (hate that method of sale, as does my banker). It sold I’m told but no idea what for
Deal 6 : Bank branch. $ 1.55MM list price. Rent 140K p.a. 5 yr lease with 3%p.a. escalation clause. We joked about the bank refusing finance due to the tenant (themselves) being a bad risk.
Deal 7 : Fed. Govt tenant…(don’t like those Solicitor General standard leases). $3MM list price. $ 301K p.a. rent. Tenant pays all outgoings…which were steep at 92K p.a. Shortish lease on a good block…scared off by the shortish lease.
Deal 8 : Childcare centre…970K list price. Brand spanking new lease of 82.5K p.a. rent with a CPI or 3% p.a. escalation clause. Lease ’til Jan ’15. Set and forget…no problems – developer getting the cream but easy on the dramas and the wallet.
This is less than half the list that I was looking at a couple of months ago….as I’ve said many times before…alot of these deals are available to every Tom, Dick and Harry…if you have the funds.
I gather however, the big money is not buying the above though, instead getting the big blocks cheaply, developing something attractive and then signing up a tenant under really great terms.
Anyway, take from it what you will…but forumites please stop banging on about not being able to find any +CF deals off the shelf, they are literally everywhere as long as you are looking in the right cupboard.
Note ; none of the above are way out in Whoop-whoop, rather all are in mainland cap. cities.
Happy days.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Having been to quite a few IC meetings over the years, but never found it necessary to ‘join up’ by buying a ‘club property’, I was surprised in Feb of this year when the front speaker said that positive cashflow properties were a myth, have been for a quite a few years, don’t believe all these trumped up gurus who say they are out there and just forget it, it’s not what the Club was chasing.
I was staggered. Later in the evening the speaker admitted that they held exclusively to residential, had no idea about the myriad other types of property out there, but did say Kevin Young was dipping his toe in that water. In the same brochure handout Kevin is pictured saying he is now chasing CIP’s and IIP’s as the potential seems to be a tad better than what his club has been traditionally chasing.
I was invited to speak about C&IIP’s and what that could mean for the club members, but first I’d have to buy a residential unit from the club list. I politely declined and keenly watch as Kevin and his members try and climb up this new learning curve, which many people have already successfully climbed.
It seems as if property investors are welcome to talk at the IC meetings, but only if you buy a club property first…regardless if that is the best for your portfolio.
Have you found that too Derek ??
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Here here Jan,
I also had the choice of buying a prop. at 18 or going on a backpackers trip around Europe / Scandinavia and Russia.
I went down the travelling option, and have never regretted it. The prop I was looking at, back in 1988, has increased out of sight, but the people and characters I met whilst travelling was worth so much more. Getting into Russia whilst the iron curtain was still up was an amazing experience – something that cannot be repeated nowadays.
Anyway, plenty of time for both I reckon, especially if you are only 18.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
