Forum Replies Created
- I prefer to see people stick to well performing middle class residential real estate or similar.
Oh well….I must be a great disappoint to you Simon…sorry mate. [biggrin]
Hmmmm……drooling…..
Thinking of all of the fantastic property deals I could do with 100MM…..it most surely would not involve anything that had the words DHA or residential or anything of that nature…..
As a former Westpac shareholder, I’d be writing a short letter to the Board letting them know whomever authorised that deal needs their head read. Taps and washers and carpets and wives whinging…..you’ve gotta be kiddin’ me.
Hell, for that type of money, I’d buy Westpac’s head office and have them as my tenant….now ya talkin’.
Depends on the dirt value of course, but I reckon a large house with nice pool and big garden in a decent area would be worth about 400 to 450K.
Lets have a look at your nett rental with a gross of $ 285 p.w. (gross yield of say 3.7 to 3.3%)
Total PM fees, say 13% of gross takings : $ 37 p.w.
Shire rates, say $ 1K p.a. : $ 20 p.w.
Water rates, say $ 600 p.a. : $ 12 p.w.
Land tax, say $ 1,000 p.a. : $ 20 p.w.
Insurances, say $ 300 p.a. : $ 6 p.w.
Maintenance, big you reckon, say $ 1,000 p.a. : $ 20 p.w.That leaves you in the hand a nett rental of about $ 170 p.w. (nett yield of 2.2 to 1.9% !!!!), which would service a residential debt interest only of about $ 130K. If the loan is any bigger than this, you’re headed out the back door cashflow wise. However, if you are fearful of increasing your 2% nett yield then this possibly isn’t the game for you.
One of the best methods of increasing the rents is to kick the bleating “We can’t afford the rent” residential tenants out. With them having to pay the rent out of their after tax pay packet – you’ll always get this resistance. Install new ones at the higher rate and off you go with your standard escalation clauses.
We tried that tactic up the line somewhat with our bank, bleating about not paying the interest and got nowhere with them…..for them it’s pay up or choof off. We now copy them.
We got so fed up with listening to the bleating, both from tenants and PM’s – who I thought were meant to be on our side, we simply stopped playing the game and don’t have to deal with their whinging any more. Worked great.
You say “if I want to sell”….but what is your intention for the property ??
We only have one strata place and would never buy another. If you left the strip of four shops together on one title, it would be more attractive to a buyer like us.
What is your intention with them ?? Sell if the price is right, split up if the price and headaches are OK, or keep for the grandkids when they are 40 ??
No corners necessary GR….
Thanks Terry.
Dazzling, I remember a certain person came to me looking for a better rate. But they wouldn’t have been able to move without great cost and hassle due to their loans being crossed collateralised.Thanks Terry. Let me refresh your memory. Yep – that certain person was me. I was looking for a better rate, prudent I thought at the time to do due diligence against my current Lender…..however the results that came back were less money and higher rates from the 7 brokers that I canvassed, as compared with my Private Banker.
I suppose if you are Mr Smith off the street walking into a bank branch looking for a loan, perhaps a mortgage broker is the way to go. Compared to the better deals that are available and not advertised or distributed to the broking community….then maybe not.
Anyway, thanks for the input, from both you and Steve. We are reasonably happy with our financing and haven’t hit a wall yet. X-colled to the wazoo and loving it !!!!
Steve / PK,
I have read quite a bit on the forums about the dangers of X coll, and believe me, we are X coll’d up the Wazoo, but so far we haven’t been restricted or come across any nasty restrictions that is inhibiting our future investment borrowing.
What nasty things can actually happen if your finances are tied together like a ball of string ?? Tenants are A1, long term and paying the lot and we intend to keep everything long term…..with that situation, where is our weak link ??
Cheers.
Or why not buy one decent IP for 500K and attempt to attract a better class of tenant….
all one has to do is find a high income tenantAbsolutely 100% correct…..however, that is far easier said than done. Negotiating a high yielding long term lease is pretty onerous, especially with a tenant who is actually going to look after your investment and treat it like a serious place of business.
No, never…..but then I’ve never bought anything at auction.
Nice note Simon……
So….what date has the publisher given for the final manuscript to be delivered by ?? [biggrin]
Nigel…..I’m not sure it’s a case of being smart or not…..else all of the Uni professors would be the richest in the land….and clearly they are not. The wife and I are some of dumbest and least experienced comm. investors around…..but then despite what the guys in suits would have you believe, we don’t think it’s rocket science.
We consider ourselves to be complete amateurs at this game…..little fish in a big pond so to speak…..I’ve bumped into some big fish swimming these waters though, it’s impressive as they sail on by. I’m always amazed at how someone with a 100 million dollar operation going on seems quite normal. It’s a pity most, if not all of them do not contribute to forums such as these.
Addressing the “risky” aspect, we’ve found if you choose wisely, work diligently, finance correctly, and attract and select your Lessee prudently…..the “risky” commercial deals can become extremely low risk indeed.
To throw many 10’s of 1,000’s of differing properties into one pot, to name but a few like warehouses, shops, CBD office blocks, wharves, petrol stations and the corner delis and put a massive aggragate blanket over the lot and call them all “risky” doesn’t help anyone and frightens away new investors.
Actually…..come to think of it….yes….they are all extremely risky…..wouldn’t touch any of them with a barge pole… [happy3]
Cheap commercial deals are only as good as the tennant.We don’t agree with this. The land component has intrinsic value, regardless of the building and the tenant. A poor tenant is very easily rectified, a small land component is not.
Having purchased a few commercial properties with purposely absolutely shocking tenants (to buy them cheaply off people with that mindset), it’s amazing what value one can add by kicking them out, cleaning the place up and then attracting a far better tenant.
Suddenly they aren’t cheap anymore….
I’m always amazed at the half truths and full on myths espoused about commercial deals…..most of it originated by proponents specialising in residential deals only with little to no experience in comm. deals.
I am hoping for a few handy hints here on how to evict.OK, here’s my two handy hints…..that most people always ignore ;
1. Never hitch your wealth aspirations to people’s private lives – by definition….you cannot control that whole machine of emotional nonsense and non-businesslike fluff that the tenancy tribunals always put before your business targets.
2. If you are exposed to the RTA – don’t be.How’s that for a different frame of reference…..for most people it’s so far removed from their knowledge base and property experiences it simply doesn’t compute.
Of course, none of the above directly helps in your specific circumstances at this moment in time….but it may help you later on when the bigger picture emerges.
Thanks Rick….I appreciate your feedback.
Oh dear Rick…..those promises are coming home to roost…how did you remember that ???[ohno2]
Yep – April ’07 is the date, but with the activities of late that goal may come forward a tad.
In reality, we could pull the pin now….but it’s that level of comfort that is sort of open ended. Once again, it’s all to do with your frame of reference.
Anyway….back to the topic….
we work at this non-stop because we feel that it is the way to reach our financial goals. Start with having a look at what you hope to achieve. It is not easy spending every spare moment doing this. But I am prepared to give up my time now and buy it back later when we are a success!Excellent attitude…..you’ll easily get there with that level of determination !! Go for it.
If I could just chip in with “depends on what your individual definition of words are…..and also what your individual frame of reference is to any particular deal.”
Looking at the front of any legal contract – whether it be a sale contract, a lease contract or any other type of contract…..the definition of many of the terms is clearly spelt out so that there is no ambiguity. There is good reasons as to why these are in there, to quell the emotive spats, and why many people simply skim over them and just make it up as they go along.
Using emotive words like ‘ruthless’, ‘nasty’, ‘unfair’, ‘greedy’ and ‘mean’ shows a distinct lack of mature legal terminology, and instead falls back on the fluffy emotional side of business. Then of course there is the motherlode of all fluffy business words – nice…..”Oh – he’s a nice man. What a nice couple. Nice garden. She’s the nicest Banker I’ve ever dealt with. Weren’t the opposing party’s solicitors really nice to us….”
The business we all seem to be interested in, is purchasing chunks of dirt with varying forms of boxes placed on top…..for the sole purpose of extracting a decent rental return and perhaps an element of capital growth……that’s it. Unfortunately, business is conducted by humans, for the benefit of humans and therefore all of the emotive baggage comes along for a ride, and in some cases, over-rides the simple cold hard numbers in the deals and ‘other’ things start getting in the way of the deal……emotive terms like integrity, reputation, honour, manners, principles, ethics…..etc etc.
Hell, we nearly lost a lucrative leasing deal because the guy wanted to play hardball with me, but then decided he didn’t really want to play hardball after all. It took a gentle little tummy rub from the wife on his soft underbelly for him to come back to the negotiating table. Quite pathetic from my viewpoint, but he was prepared to sacrifice everything in the deal which was massively beneficial to us both, because he got his nose put out of joint during one of the tumbles.
Everyone can “girlify” the business we are in and wrap it up in layers of heart rendering emotive language as much as their particular background and frame of reference allows. Of course your PPoR is excluded from my comments above. This is totally different and quite rightly part and parcel of the emotional side of things, where it is your home and not an integral part of business.
In terms of ruthlessness, I’ve seen two completely different reactions for the identical deal. The lady was a millionaire and transacted a “reasonable” deal that both parties were willing to enter into. When reviewed by a novice, the novice thought the lady had been ruthless with the other party…..using their novice frame of reference. The elder uncle with 30 years experience and 20 odd MM of deals under his belt thought she had been taken for a ride and overpaid by between 60 and 70K. With his frame of reference for the identical set of numbers his opinion was the complete opposite of the novice.
In summary, “ruthless” is an emotive term and it is used subjectively depending on who’s goggles you view the world through……same subject…..different goggles —> different viewpoint. Which one is right ?? Probably neither, or probably both….depends which side of the fence you are currently on…..and believe me, there is a fence.
My sister and her husband, who reside in Sydney, just flew into Perth last night and are scheduled to fly back to Sydney on Tuesday morning. Their intention over the weekend is to purchase another house and evict a scabby residential tenant who is 5 weeks behind in his rent…..no surprises there !!!
The reason they came across though, is that they have been surfing the net and putting in offers, but two conclusions have already surfaced…..# 1 is the stock being put on the net is the leftovers that the agents can’t shift within a few days, and # 2 is the leftovers are being snapped up so quick, the offers that they are putting in are being ignored constantly.
Looking at the constant trouble they are having with PM’s / residential houses and tenants who promise the world and don’t deliver….I suspect this shall be their last residential purchase, ‘cos we usually have a chat over a BBQ. She’s finally starting to like the sound of tenants who don’t whinge, pay everything, improve the place at their expense and stay for a decent length of time.
The resource boom not only has a flow on effect for housing the workers…..if you move much closer to the source of the action, companies also need to supply a work environment and a place to keep all of their machinery…..we are finding moving closer to the source of the action actually improves returns and lowers the risk at the same time……due mainly to the long term leases currently being signed, which should ultimately carry you through anything that may happen in the next 4 to 8 years…..
Because ultimately the accountants run the show. Have a squizz at the Balance Sheets of major companies and the “Property, Plant and Equipment” line. They are forever trying to get these down to a minimum. It’s a non-current asset.
I’m not saying it makes any sense at all, and it’s only been trendy for the past couple of decades……probably copying the latest trends from the US. I don’t agree with their philosophy at all, and think it creates a marvellous foundation for the company to grow further…..just as Ray Kroc does with his McDonalds. In fact, he was quoted once as saying he isn’t in the burger business, that just keeps the tills ticking over, he’s into the real estate business (the dirt underneath the restaurants) and that’s where he makes most of his dosh in the longer term, by owning very valuable (usually corner lots) in most CBD’s around the world.
Also remember, leasing is a direct input cost, and therefore fully tax deductible, which is a long way removed from the mindset of most renters, which feel the pain of paying rent every time from there after tax back pocket.
Also, if your business is able to sustain 20 or 30% growth year in year out, it stands to reason you don’t want to expose your cash to a market – real estate – that albeit does increase, doesn’t necessarily go up consistently as well……everything in business is comparative. Good is only good if compared to something average. Good compared to outstanding is not good…..follow ?? [eh]
In summary, the ‘obvious reasons’ you listed initially are the reasons…..there’s a reason why they are obvious.
One last thing…..I don’t know about your experiences, but I’m finding currently buying large industrial sites, my stiffest competition are always the owner operators, not the investors….and more specifically it’s usually te operator from next door who has a strategic reason to purchase the site next door and is therefore prepared to go higher to get it.
