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Hi All,
my partner and I balance each other to a certain extent. I like to be thorough with Due Diligence but almost to the point of analysis paralysis and would miss every deal. My partner gets the vibe of where the action is and wants to act on it. If it wasn’t for him we would have missed on the last 2 properties. One was supposed to be very positive (in south Hedland, WA) but due to constant problems with things needing fixing it has probably ended up neutral. Luckily though capital growth has sky rocketed so it will be fine to sell anytime after we have owned it for a year. So to answer the original question we have discovered that to be serious in the investing game time is needed to do adequate Due Diligence and be quick enough to make an offer.[biggrin]
I looked it up on the internet once because with 2 young kids I was having trouble getting a urine smell out of the carpet in their bedroom. 1/2 cup vinegar mixed with 1/2 cup water poured directly onto the smelly area then towels to soak it back up. May need to do it a couple of times. It worked for me but it will depend on what is underneath your carpet and how far the urine has soaked in. Also depending on the colour and type of carpet vinegar might not be OK for your situation. Look it up on the net.
Good Luck[hair2]
We went to South Hedland to see the house we bought. Most of the houses in South Hedland seem to be old fibro houses on poles with iron roofs. Some are quite run down and ugly looking. Others have been painted and maintained quite well. Ours is in the later catagory. There was a beautiful tropical garden front and back and a huge below ground pool. The owner has been upgrading the inside – new kitchen and new tiles in bathroom, new paint throughout. 3 small bedrooms, 2 bathrooms, one open lounge dining area. So for this we are paying $310,000. The real estate agent predicts a rent of $550 – $575. She has a list of companies wanting to rent houses and thinks this one will go fast. I surprised to find there are 3 people who carry out pre purchase building inspections in the area, one electrician who does electrical inspections, 2 pest companies for white ant checks. So 9.2% rental return already and South Hedland should get better.
It has a huge new shed, very cyclone proof and it has a cyclone shelter. I have never seen one before but apparently quite a few people have them. With the houses being so old it is probably a good idea. If people are interested I will keep you up to date with our progress in the South Hedland property investment market. The agent did say she is getting numerous property investors from over East phoning about the South Hedland market.
It is a strange town to try to describe to someone who has never been up North. It is a red dusty town with plenty of old houses and a few new houses being built too.
[biggrin]Hi Jarrah,
It would probably be helpful for someone wanting to understand the market here to do a little reading on how the mining companies are doing. Some of the company names up here are RioTinto, Woodside, BHP, or do a general search under Mining Pilbara latest news. They seem to be constantly finding new deposits of iron ore etc.
It is hard to know if we are doing the right thing and that is why I kept putting the breaks on for so long. I get analysis paralysis. My partner just goes for it. Between us both I hope there is enough balance to get it right.
Due diligence is difficult as there are not always long term stats on towns up here. Some of the towns have been closed mining towns for years and only recently become Shire owned. The housing shortage is so bad that now companies are shruggling to get enough workers because they can’t house them. Local infrastructure also struggles due to housing shortages and massive rent hikes which are beyond the salary of everyday people. To solve this problem huge sections of land are being released. Currently they are selling about 20 blocks per week. Over the next 2 years they will probably release about 500 blocks in total. There would easily be 500 people who could move into completed houses so I don’t think the market will be flooded. If anything everything will probably just plateau. But the Karratha market is already at it’s peak.
South Hedland is an area I know nothing about until yesterday when we put the offer in for a house there. It is probably most helpful if I keep everyone up dated with how we go with it – the positives and negatives of me letting go of the reigns.
We have had 3 cyclones over the past 4 weeks so that is another thing to consider up here and knowing where the tidal surge would be predicted to go. If you buy in an area that is too low then everytime there is a cyclone your tenants are told to vacate the house and stay at the local highschool overnight. (not fun). You can get info on that from Roebourne Shire Council.
If I manage to find a building inspector for the place in South Hedland I will be asking him/her to check how cyclone safe it is.[biggrin]
We live between Karratha and Port Hedland. It is unlikely that someone from out of town would feel comfortable buying up here at the moment because you don’t get time to do your due diligence before the place you are looking at has been sold. So we have had to brave and leap into the market. Remembering we have lived here for 10 years and know what is going on with industry up here. (A lot of positive stuff).
In Karratha blocks of land have been going up for sale on a Monday morning for the past 4 weeks. Within an hour they have sold. We purchased one in week 2 and by week 4 it has gained in value by $30,000. We paid $202,000 for a 832sqm block in the newest area of Karratha. I prefer Baynton (the newest suburb) as it is higher up and further back incase of tidal surge in a cyclone. Then we started trying to find a builder. We were quoted $380,000 for a 4 by 2. Quite a plain but solid style of house. The rent would be $750 – $800 per week. That is on hold as we are going to try to work in with others in a similar situation and get our own builder up to do it for less for a group of house.
I got home from work yesterday and my partner was all excited and wanting to put an offer on a 3 by 2 in South Hedland. We had never even looked at South Hedland before today. Apparently there are a few very positive mining related deals happening that will increase the need for houses to rent in Port and South Hedland. We had our offer accepted and we are going to see the house on Sunday. If you look at real estate in South Hedland they all have offers on them. Rents at the moment are at about 8% rental return which isn’t great. But if South Hedland has the boom Karratha has experienced (which it will) then within 2 years our rental return should be 11.66%.
We can see the value of both South Hedland and Karratha but Karratha is just so expensive to get into the loop.Good luck all you fellow investors.
[biggrin]Dazzling,
you have probably resolved this issue by now as I see it was first posted a year ago. But in my relationship I am the one who hates spending money on, “dudades”, (Robert Kiyosaki’s term for plasma tvs and boats etc). Initially I was the one interested in property investing and found it hard talking about it to my partner. Then I sent him off to a seminar and he has never looked back. It is great as we have found a common goal. We both find time wise it is difficult with 2 kids to care for. I think if you volunteered to take the kids and give your wife some time to attend seminars and learning opportunities without you there you might find she comes along in leaps and bounds. Most women appreciate any time without kids and would do anything just to get it.
Also sitting down together and doing some goal setting is helpful as it is can be surprising to hear exactly what your partner’s goals are. We assumed we were wanting the same things and going to achieve it in the same way but it wasn’t the case.1. Using cheap resources such as the Valuer General’s sales data and value watch reports when researching suburbs, looking up the value of the property you are about to purchase.
2. The differences between residential and commercial properties e.g. doing the research on each, double the purchase cost for commercial, loan differences, landlord cost differences, different expectations of returns, leases.
I was looking up term deposit rates the past 2 days and NZ has some quite good rates for $10,000 NZD over 12 months. Just incase you were thinking of putting it somewhere safe until you had a steady income.
Alternatively you could look into the First Home Owners Grant Scheme.Good Luck
DebThere are quite a few rich single men where I live. What age and attributes do you require?
Are you happy to live in the middle of nowhere, 45 degree heat in Summer. Alternatively the new rich man could do fly in fly out and you could live in the City.Ha Ha
Deb
Dazzling, is it OK to ask the tenant what their intentions are as far as staying on? How far can you go with communications to the tenant when you are the purchaser? Could you ask the tenant if they would be interested in signing up a 10 year lease if you purchased the property? Can you write that in an offer e.g. subject to tenant signing new 10 year lease.
Deb
You could try the Valuer General’s Office in the state you are searching. The sales data office should be able to sell you the latest value watch summary on the area you are looking (unless you look in small country towns). If the commercial real estate makes up the whole subburb then the report will be helpful to see what capital growth there has been over the past year.
When reading through Steve’s book, 0 to 130 Properties in 3.5 years. pg 160, he states, “I expect a Cash on Cash Return of over 15% per annum for residential real estate and 20% for commercial property.”Good Luck
DebThe best interest rate I can get from a lender over East is 7.9%. That is only if when the property is valued it is actually worth the $350,000. I came across an interesting quote from a lending institution.
“unlike residential financing where the Borrower must qualify for the mortgage product; Commercial financing differs whereby the Property must qualify (not the borrower).”
For the $10,000 of my own cash going into the deal I could put it in a term deposit and get $550 back in 12 months. The cashflow with the new interest rate would be $6547 per year, $136/week. But I know what you mean Dazzling. If one of the airconditioning units needed replacing that would probably cost $10,000. I can see the main problem with Commercial deals is you have to be prepared to pay the $770 valuation prior to placing an offer.
I think it has come time for me to admit defeat on this deal. It has been a huge learning curve and that has to be good.I should rename this thread 22%cash on cash return. The commercial bank loan officer informed me today that a commercial loan with Commonwealth Bank is at 8.7% for 5 year fixed interest only. That really throws a spanner in the works for me. Instead of this deal returning more than $10,000 p.a. it would be a return of just over $3,000. Our other loans are with them so it was going to be easier to continue with them.
All the costs associated with purchasing commercial property seem to be more than double that of residential property e.g.bank loan estab fee $2000, valuation fee $770, electrial inspection $550, settlement fee $1250. But once it is purchased it would be a nice steady little income for the time of the lease. I got the previous 55 sales for the same area the property is in. But it is impossible to draw any real comparisons without knowing more details about their leases and improvements.
I found out from one of the Valuers at the Valuer General’s Office that they record on their sales data the sale of improvements & leases even if the property is still Crown Land. I thought that was interesting. I always thought you would only see data once the land was sold to a private buyer.
I will try and improve the deal by checking out other loan agencies, try to get a longer lease with the tenant.I now have the lease (which doesn’t appear too complex).
sometimes I hate living in a small town. The only commercial loans person has been away the past 2 weeks. Armed with the lease and the past sales data I will get the bank involved next.
Thank you all for your advice along the way.Deb
I think you might be onto something Dianne.
I told the agent I had been advised to see the lease prior to making an offer. I said both the bank and my lawyer would like to see it. Now I will wait and see if he posts it to me.
I also got the historical sales data for this lot and the first recorded purchase was in 1992 for about $75,000. No further change of hands since then. So for it to be recorded with the VGO does that mean that the land must have been purchased and therefore not Crown Land? The VGO wouldn’t record just lease and shed sales would it??
I will keep you all up to date with how I go.
DebWe live in a mining town in the North West of Western Australia. Population 2500. There is a severe housing shortage here and in the surrounding towns. When a house comes up for sale it gets snapped up. The houses are gone before I have a chance to complete my due diligence in order to make an offer.
The only reason we are looking in our own backyard now for positive IPs is that I could manage the properties myself and improve the return.
DebThanks Dazzling & Gross Realization.
This is such a big learning curve for me. I was being sucked in by the rental return without looking at the whole picture. I am used to residential and being able to find out every last detail on the property myself from the Valuer General’s Office.
I will let the agent know I will need to see the lease before the bank will discuss loans. Then I will get the bank to do their usual valuation and see what happens. All this prior to putting in an offer if it looks good. Plus I will get a lawyer to look at the lease. Will let you know how it goes.Thanks
DebThe land is in the industrial area near a mining town. How would I find out what the ‘dirt is worth in an industrial area’?
The buildings are 25 yrs old.
The lessee’s mew manager said he wants to be there for another 20 yrs. They service the mines which are booming and should be for the next 20 years plus.
We should be able to lease it again if needed because the mining business here is booming.
My partner said if we are to pay the full asking price we should include in the offer that we would like a new tenancy agreement with them for 10 years. What do others think???
They won’t show me the lease until I put in an offer but said I can include in the offer that the lease must be acceptable to me.
We will wait and talk to the bank tomorrow about finances before putting in an offer.
I am relying on capital growth from an IP in West Perth. Been told units have gone up heaps over the past 12 months there.
[cap]
Deb[confused2]
Need help. I am still working on this deal. Agent said the $36,000 rent is net and on top of the V.Os. I am using Steve’s Buyer Beware Financial Analysis template to check the stats. I have just noticed that the funded costs don’t get added to the principal amount being borrowed from the bank. I have added them now and the cashflow goes from $12,000 to $10,000. We are also reading a book by Martin Roth & Chris Lang called “How Investing in Commercial Property Really Works.”
It is quite helpful as is this forum.
Is anyone else using that template at the moment? If so did you add your funded costs to the principal?Thanks
DebHi Dazzler,
thanks for your valuable input.
I will clarify with the agent whether he has quoted net or gross rent.
The rent review are yearly CPI. So I guess that would make it about 3.5% currently. Is that what you mean by escalation rate? Should it be more than that?
The agent was also saying that an application has gone to the council to have the land converted from lease hold to free hold. The agent told us if we put an offer in to make it subject to free hold. I believe the vendor will have to pay about $20,000 if the council agree to make it free hold.
Over East do you use Settlement Agents or Lawyers for the settlement of properties? Would there be any benefit gained from using a Lawyer over a Settlement Agent?
This is the first time we have looked at Commercial Property and it seems too good to be true.Thanks
Deb & Brad
