Hi Delboy,

Looks to me like a good deal on the numbers – ie if it all stucks up to scrutiny, ie the tenants are right, leases ok (or readily improvable) and the general economic environment in the suburb in question is such that the risk of vacancies can be mitigated I would not hesitate. From what you’re indicating the outgoings are the responsibility of the tenants – that would seem to mean that the property offers a very healthy return on investment (return on purchase price & closing costs of 13.8% and a very healthy cash-on-cash return).

As I said – if it all stucks up in practice (ie after appropriate due diligence), personally I would go for a deal like this. Not often that you can just ‘buy’ a positive cash-flow like that these days (ie without having to manage a number of problems to manage it into positive cash-flow territory).

And no, you can’t commit your 30% deposit a second time. On commercial properties, all other things being equal, banks will always be looking for at least 30% of equity across all your investments – but there are always other creative financing solutions to explore.

And what does Steve say? Money follows management.

What is the going return on investment for commercial properties in the area? Have you checked with a local real estate agent or other contacts what the average return is? ie if it happened to be somewhere between 8-10% (in Perth metro areas at present anything around 7% would be considered good), you’d be able to achieve a profit straight away without lifting a finger and then reinvest your profits in further investments.

Just a few thoughts – and to demonstrate that I put my money where my mouth is – I purchased a commercial property in Kalgoorlie recently for $206.5k with a rental income of then $18,200 pa, which I have since increased to $23,400 pa. I’m happy with that return and it’s less than what you’d be looking at in your potential deal.

Good luck and do your due diligence!

Mat