Hello forum readers,
I am going through the final stages of buying this property. For it to fit Steves 11 second rule it really needs to be around the $150K mark but it’s at the 170 mark. But it still produces a positive cash flow. Can anyone see a potential problems with this property?
I also have other deals that I am looking at but will need several investors if anyone is interested? Can anyone recommend any books or suggest where I can get advice for piecing together deals with multiple investors please?
Details:
Office Space 109sqmPerth Metro area
Purchase price $170,000 = $1605.50perSqm
Plus about $10,000 in buying costs.
GST get waived because there is a tenant all ready.The current tenant is also the owner. So if we buy it, it comes with a 2 year lease with a 2 year option to release. Rental is $15,300PA which is 9% return. ($140.37perSqm)
To be purchased by using the equity in my current property. The bank will finance 100% including the deposit and all the buying costs. After all costs should get an income of $66.48 weekly.
Variable Outgoings PA (paid by tenant)
Strata fees: $2240.00
Water Rates: $? around 200
Land Tax : $150.00 I think
Shire rates: $? Around 800
Total approx: $3390.00If for some reason the tennant goes bankrupt or when the lease finishes we cannot find another tennant then we’d be up for about $8,000 PA or $154.00 per week to pay for interest repayments and the Variable outgoings. I am going to look into whether we can get landlords insurance for commercial property.
Capital Gain in the area has been around the 11% mark for residential. So the property should go up by $39K in the next 2 years. Sydney has had a slump in the last 12 months and houses around the 500 – 600K mark have dropped by up to $80K. People over here don’t think that it will happen over here but I have no facts on this. It should not drop I’d say.
109m2 Office space. 5 year old building. Partitioning throughout, one main area plus conference room, one large room and kitchen. Reverse cycle refrigerated ducted air conditioning. Current business is a mortgage brokers. Could be used as accounting, law, conveyancing, architectural, drafting, etc office space. Surrounding are realestate agents, a computer shop, coles, and a whole plethora of shops. I think about 40 – 50 all up. Only 2 where vacant that I could see.
Thanks all,
Scissors
I’d post this Question to DAZZLING…
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorI would seek advice from local REs inregards to demand and the rent and talk to the Body Corporate.
hrm
Thankyou for your input.
I have spoken to several agents in the area and most agents don’t really have much knowledge on commercial rentals. The one agent whom specialises in the renting out commercial office space in this area is also the agent selling the property selling the office. There is nothing else really available to buy which is similar.
Good afternoon Scissors,
Congrats on your detailed post. You seem to be headed down the right track. It sounds as if you are looking for some reassurance as this is your first non-res prop, so if I may pose a few comments to help you on your way ;
1. Go to the VGO and buy a tax map of the area where the prop is located and find out when and for how much the Vendor paid for it.
2. Calculate the cap growth from this data w.r.t. both the 150K and the 170K asking price.
3. Does the cap growth compare at all to the res numbers ?? If not – you may be buying a purely income stream. If yes – happy days.
4. My intuition tells me the answer to 3 is probably not as the prop does not have significant land content.
5. If the Vendor is also going to be the tenant, move ahead with caution…what is the origin of the lease that shall govern the arrangement ??
5a Do you have your own lease drawn up which they must sign, or
5b Do you have access to a solicitor to draw one up for you and force them to sign, or
5c Have the tenants drawn one up and they are going to make you sign it…perhaps even tie it into the Contract of Sale as a condition ?? If 5c is the case, be on your toes big time !!!
6. Try and get 2 or 3 months Bank Guarantee signed over to you…this negates the need for LLI.
7. Be wary of the 2 yr option…it is to the benefit of the tenant – not the Lessor. Banks do not recognise it as having any value.
8. Try and get an escalation clause in there. At the very least CPI – best if a fixed 4 or 5% p.a.
9. If the bank is using your res equity, make sure you squeeze them for a good rate.Overall, I believe you shall enjoy more income and suffer less headaches with your choice of prop than going down the 3×1 house route.
Good luck with it all.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Thankyou Dazzling for for your information.
Especially the tip on the VGO (Valuers Generals Office).
Ragards,
Scissors
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