Forum Replies Created
Thanks Tracey for the further info, I too would have applied a higher yield like the other two valuers. I did recently note the conclusion of a sale of a boarding house in Sydney prior to Christmas, well located etc but with an 8-9% yield also (refer Saturday Business SMH (commercial property section – deals) Dec 07 – sorry can't be more specific). There was also another recent article regards a Sydney developer being allowed to demolish a Boarding House (loss of low cost housing).
The yields I referred to were more of an industrial nature not multi-tenant residential. As you would be aware, yields do vary between property sectors and within each sector eg high tech industrial vs light industrial, units vs housing, strata shops vs shopping centres etc.
Yield would have been marked up for it's restriction to provide for low-cost housing as well. These are great cashflow investments however there is little incentive for the owner to undertake any improvements as the growth in rent is negligible.
Depending upon the restrictions placed on BH in Brisbane City, are there possibilities of this site being valued as a development site and losing its boarding house status? This will return a much lower cap rate and release some funding.
I have had a few dealings with NSW DOH, (at their Liverpool & Ashfield admin offices). Both of their property groups seemed to be on the ball but quite stretched (had taken on responsibilities for other departments). Their works were done on the 'cheap' but always with licensed contractors – they have a panel of prequalified licensed contractors for their r&m works.
Sounds like something dodgy was definitely going on in this case.
SNM
As Steve points out, essentially you are buying a cashflow business – ie your role is to manage the accommodation and to get commission from this management. If it is a shortstay/motel arrangement, then ensuring that you maximise the occupancy of the premises will ensure that you will be on track to max your commission.
Consider what forms of income does the premises generate? ie rent, cleaning charges, fees for general maintenance, reimbursement of % of marketing costs etc. Some of these can be quite lucrative however you will need to assess the management agreements with the individual unit holders (if the units are independently owned from the mgmnt rights).
Tracey,
It may well beworth querying both of the valuers as to why they have given the property such a high yield – does theproperty have some unrealistic risks which can be mitigated? eg asbestos roof, short rental history, poor covenants (short term/monthly leases)? Is the building old and in need of major work (this is often the case indicating a high yield)?
What is the vacancy rate in the area? Has this skewed the valuers' opinions? Has the market or any other factor changed recently of which the valuers may not have been aware?
Having investigated many industrial sites located in regional areas (Hunter/Bathurst/Orange/Wagga etc) over the past few months, I have found very few suitable properties yielding more than 7.5% on a fully let basis (but these sites were in NSW) and mostly asking $2.5M+. Most of the smaller sites in Sydney sell on a much tighter yield (sub 6%). I too will consider taking this one off your hands at such an attractive yield.
So without more information about the state of the current Brisbane industrial market, I couldn't comment much further.
Regards
SNM
It may pay to contact a consultant hydraulic engineer to assess the claim.
Happy NY Tracey.
Firstly, what do you mean by market valuation? Is this what an agent has told you the property is worth? That is not MV.
Sure, a tighening of the yield from 9.2% to 8% might sound fair however the valuers have taken into a number of considerations in preparing their assessments (and these would have been listed in their valuation). I hasten to add, although many properties do sell at less than a 7% nett yield (cap value of $1.7M+, it would be grossly inappropriate for the valuer to put such a figure on the property using either the capitalisation of nett income or the summation methodology as they are bound to consider the existing tenure , vacancy rates both generally and in the local area and the likelyhood of achieving the same or greater rent at the term of the lease.
In Sydney, at least, properties let 3-5 years ago and undertaking lease renewals or vacancies are showing a 10-20% drop from current nett rent levels. Financiers have been caught out in the past by over exubrient valuations on commercial property and valuers have been hit with great increases in their PI insurances.
I would tend to agree with the vals as they have used 2 methodologies to back their valuation.
BTW they can be sued either by the banks or by yourself had they overestimated the value of the properties and a slump is to occur.
It is still possible to pick up houses in the Greater Sydney Basin which will return 6% as is, with a little work that will increase.
Have a squizz at the AFR from the 28th Dec – good guide to all states markets including compounded annual growth rates. The questions remain: how much of this growth is sustainable? Now that the other capitals have caught up with syd/melb will the great divide still exist or will they go into decline or overtake these two? What is affordable going to be in a couple of years?
Was the $1000 paid prior to signing the contract for sale or provided after the signing of the contract? Even at auction, 10% is required unless you have made prior arrangements.
NSW & Vic both require 10%, less by negotiation. Qld I think is the same.
Sorry about that, I should have said market rent review.
PS you may be better off registering for GST even though the rent may not exceed the trigger amount but the prospective tenant may require tax invoices.
Just ensure that the company reimburses you for the payments ie have proof of payment and invoice to company.
Have his mum keep proof of a) the debt, b) the interest rate c) interest charged d) repayments made – a loan document wouldn't go astray either (proof of debt)
Anywhere from $5-$50k depending upon how big, extent of structural works, access to alter existing plumbing, quality & extent of wall and floor finishes.
Read your managing agent agreement. It will state when moneys will be transferred to your account. If there is no money on the transfer date, it will transfer $0 to your account. They have done the job that you have requested them to do.
However, push the issue with the agent ie the mortgage is overdue, tenant will be evicted because you can't pay mortgage & they will lose their managing agent agreement. They might see it differently.
oops, didn't realise the nick was tools thought you mean they were a tool……
Brooklea, I have seen tiling over a number of substrates including concrete & fibre cement so it is not a stupid question.
Get your solicitor/accountant to confirm it but I would assume that there is no cgt on your inherited portion if you sell it within 12 months. There is cgt payable on the remainder which you bought (your sister is cgt exempt within the first 12 months). You may be better off waiting the 12 months and paying cgt on 50% at your MRT – do the calcs.
A pergola requires town planning approval, generally. If it is not shown/approved on the council plans that will stop it selling as well. Think about it. Don't do it.
As an alternative – install a shade structure
Retail tenancies are regulated by individual state retail tenancy legislation (this is not a commercial lease) – get your solicitor to pull out the most appropriate version (there are many). Are you getting an agent to do the initial letting? They will ensure that the offer & acceptance is compliant with the above RTA laws.
Is the house separately let from the retail?
Managing then requires specialist skills in determining what is appropriate eg type of cpi increase (eg Adelaide or Capital Cities), application of critical dates for notices (options, termination, lockout, MRR), collection/application of outgoings, application of increases in outgoings over a baseyear, collection of landtax etc.
Some of these may be applicable depending upon the deal struck with the tenant & more importantly what was contained in the offer and acceptance. All correspondence which is to be relied upon must be in writing especially the offer & the acceptance.
How is the bond to be managed? Some states now require cash bonds to be placed with the rental bond board whereas bank guarantees can still be held by the owner/agent.
How are you going to determine the appropriate rent for marketing? Is it to be a gross or net rent? Is turnover rent to apply?
You have a steep learning curve ahead of you if you are going to go it alone – do yourself a favour, engage an agent to let the property and carry out the first year's management (gee it may cost you 4-5% of the gross), learn from them, then do it yourself.
If you take the tiles off, (assuming that they are laid on a bed of mortar) you will then have a 25 mm gap under your doors. It will be much easier to trim a door to go over the carpet than to replace each door. If all else fails, trim the area around the door/window with alum edging.
