Hello
I’m new to the site, and am wondering if anyone can advise me on the pro’s and con’s of investing in commercial properties like Hotels and Motels which seem to have a high return of around 10% net.
I am looking at investing in property to achieve a positive cash flow through geared finance. Any other advise would be appreciated.
Thanks
Neil
Hi Neil,
You will find a wealth of information in the treasure chest on this subject. If you can’t find a particular answer to a particular question then repost again.
C2
“Is it true the more you owe the more you grow until the bank steps in?”I’ve done motels to death. I don’t want to be responsible for peoples needs on a 24 x 7 basis so I’ve never gone into one. But here are some rules of thumb picked up from agents, lawyers and seminars.
The ultimate aim is to own a freehold and lease it out.
They sell as leaseholds at a price which is roughly equivalent to the annual turnover.
Freeholds should be about three times turnover.
You can get finance for about 50% of a leashold and 66%+ for a freehold.
Never buy a leasehold with less than 20yrs to go.
Pay yourself back for the lease before you start to use the income other than for living.
Investment motels, (already leased freeholds) sell at a return of between 8 and 12%. The higher the % the crappier the property.
Leaseholds return between 20 and, sometimes, 30% on investment.
Check that all chattels are owned.
If you want more, just ask.
I’ve done motels to death. I don’t want to be responsible for peoples needs on a 24 x 7 basis so I’ve never gone into one. But here are some rules of thumb picked up from agents, lawyers and seminars.The ultimate aim is to own a freehold and lease it out.
They sell as leaseholds at a price which is roughly equivalent to the annual turnover.
Freeholds should be about three times turnover.
You can get finance for about 50% of a leashold and 66%+ for a freehold.
Never buy a leasehold with less than 20yrs to go.
Pay yourself back for the lease before you start to use the income other than for living.
Investment motels, (already leased freeholds) sell at a return of between 8 and 12%. The higher the % the crappier the property.
Leaseholds return between 20 and, sometimes, 30% on investment.
Check that all chattels are owned.
If you want more, just ask.
Thanks enduser,Valuable information.
I am only considering buying an investment property, ie with a lease already in place.
And I guess I was just wondering why the net yield is so high compared to other commercial real estate especially when the ptoperty I’m looking at has a 10.5% yield with a new 25 year lease in place.
Thanks
Neil
Because you have given someone such a long lease, you can’t get your hands on the business yourself so it’s compensation for that. Other commercial leases are 3x3x3 or something similar. Also, over 20 – 25 years you are going to have to put in some cash to keep the structure sound. As landlord you have to keep up painting, concrete, gutters, signage and a range of “property” factors.
Which ones exactly is subject to negotiation when you lease it out. Check an existing lease done by the previous owner very carefully.
Theoretically, a 25 year lease has 25 years to go, but as time passes and the leaseholder wants to move on, he will approach the landlord and ask to negotiate a new one, often after only a few years. He wants to move on and up and has to have a long lease to sell. You have many options at the point.
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