This is my ifrst foray into +CF investment and though i think the figures are OK, I’d like some confirmation and reality check.
There are 4 tenants –
*hairdresser been there 20 yrs with 6 mth old 3×3 yr lease
* book keeper been there 2 yrs with new 3×3 yr lease
* accountant been there 4 yrs pays monthly
* financial planner been there 20 yrs with no lease but REA says he will enter a leaseThe rent is $33,420. I’ve calculated 20.41% CoCR if purchased for 320K, ($20K under asking price 340K). The query about my calculations is about the fact I am using our home as full security to borrow 100% of the price. This means I’ve calculated the CoCR without any deposit included in the outgoings and does include the cost of interest on 100% of the purchase price. Does the fact I’ve not included any deposit in the outgoings make my CoCR less valid (I’ve read Steve says 20% CoCR is the minimum on a commercial property).
Look forward to comments from the experienced bright sparks out there.
Thanks
NoviceDoes the rent figure include GST?
If you’re borrowing 100% of the price it seems tome the deposit wouldn’t be included in COCR
Before you get too excited you better call the bank.Commercial loans are a whole different ballgame to residential loans.You will find that most banks will only lend about 65-70% on a comm. deal.And the terms are a lot shorter.Like 10 years.
Good luck.Russ.When Steve mentions 20% COCR for Commercial… this is because of the extra deposit needed usually to secure commercial property. I would say that the 35% (Inc Closings) you need to pull out of your property to complete the transaction… should still be considered as a deposit as you still need it to raise the funds.
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**TRY NOT TO USE YOUR PPOR AS SECURITY**
I would also try to just get the 35% (INC Closings) deposit required to secure the loan out of your house rather than X collateralising (Bank takes all if all turns to muck).
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So this is how I see it.
Deposit:$112,000 (35% of 320K)
Income: $33,400
then work out your outgoings (Insurance, rates and maintenance not covered in the Commercial lease contract) and then you will come up with your true COCR.
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Perhaps you could see if the Vendor will leave 30% in the deal if you can get to the $340K and that would then make it much more attractive for you and for the Vendor.Just food for thought and hope you succeed in your endeavours!
Cheers
Kiwi[biggrin]Hi CRJ – Thnaks for the reply. Yes, the rent figure does include GST. Like you, i thought the deposit I’m not paying out should not me included in the calculations for CoCR, but Kiwi-Fulla disagrees so I’m still not too sure.
Hi RussH – Thanks for your reply. My circumstances are such that my bank will lend me 100% of the purchase price and the 5% closing costs but it is fully secured against my private home.
Hi Kiwi-Fulla Thanks for your reply. The loan I can get has an offset account and I can access and put the 35% into it. This reduces my interest payments and affords me tax advantages on that 35% cause I no longer pay tax on the funds I could have earnt with it (like 4% from a savings account versus saving 7.5% in interest payments on the 35%).
Whether i use my offset facility or not, I’m not spending the 35% on the investment cause that money is still available to me (I can withdraw the 35% from the offset and pay the interst on that 35%).
The CoCR certai nly plummets when 30% deposit is part of the calculation. But I’m not spending that 30% ???? Still wondering …
Finally, could you please expand on your suggestion to ask the vendor to leave 30% in the deal.
Thanks once more to all
NoviceIf your positive cashflow is opaying down debt whats the problem?
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