Hello everyone,
I just joined up and wanted to say hello. I have been watching the site for a few days(waiting for my membership) and I am impressed by the depth of knowledge out there.I wanted to tell you quickly about my investment career. I bought my first real estate investment, if you could call it that, when I was 19 years old. I bought vacant land and wasted money. Years later I put a house on it. This was 1987 and I got a mortage for $60k (inc.land). Everyone though I was nuts spending so much. Anyway 12-18 months later I sold it for 125k. Since then I just kept buying a house everytime I got transfered with work and ended up with 4 houses. I eventually sold then off one by one and re invested and kept improving my PPOR . I had no plan, no specific goal other to never live in a rented house (a phobia). I read Steve’s book and upon closing the book realised the whole 3 days reading was an “A HA” moment. I finished reading the book on friday and I have been checking out the forum since.
I saw a deal on the internet I am considering. Commercial property, retail, high vis position, 10-12km from CBD. asking price $370k, leased for $33,600 pa +GST + Outgoings. My loan interest only would be about $26,500. I found this deal within an hour of starting out looking for a positive cash flow investment. I guess I am scratching my head and asking “am I missing something” because it seems too easy. Any advise appreciated. Hope to hear from you all regularly in the forum.
JTW
Sounds good to me, They are out ther , go buy it before someone else does.
Cheers Rick
Monopoly, my favourite game
Welcome to our forum JTW.
Seems you have some experience buying and selling – look forward to your contributions!
Cheers,
Simon Macks
Residential and Commercial Finance Broker[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks for getting back to me so quick.I guess that I have been an accidental property investor up until now. I needed more focus on my deals but didn’t or probably still don’t know how to fully evaluate a deal.Steve’s book hit the spot, as if it was written for me. I feel like a sponge at the moment just sucking in the info.
I’d like a comment on that commercial property, I am going to see the agent tommorrow. I think I must be missing something.It makes money and comes with a real solid tennant, why would you sell it ??????
JTW
Hi JTW and welcome
Were you specifically looking for commercial property? This is still where the greatest returns are at present.
Questions:
1. What type of commercial property? eg industrial, retail etc
2. What zoning?
3. Who is selling and why?
4. Single or multiple tennants, and tennant history as well as leases and options.I’m sure that you are aware that, if you get a good tennant with a good business and the property becomes an important part of his/her business you will be able to increase rental at or above market which will then increase the value of the property. Not only will you get good positive cashflow but you will be increasing the likelihood of capital gains.
Cheers
pr
JTW,
A few pointers:
- Make sure the lease is not about to expire
- What is the age of the property
- Type of property (Can you get 70% or better LVR?)
- Councils plans..
Do well!
ErikErik Reurts
Micah Finance Solutions
http://www.micah.com.auI had a look at the commercial premises this morning and it seems OK. I want to check the market out a bit more before I commit, you know the story, buy the right thing not the first thing you see.
This place was as the agent described, it is a retail shop with a national pizza chain tennant. In a set of 10 drive up, strate titled, 80 sqm site. a little older (15 – 20 yrs) Hasn’t got wheel chair/ pram access. Don’t know if the council will force them to change or if they are exempt. The lease is up in May06.
I am planning on trying out commercial property for the challenge, learn something new, POSITIVE CASHFLOW. At the moment I have PPOR + vacant land + holiday unit on the Gold coast. Don’t owe money but I’m not getting anything out of it either. Thanks for the tips, particularly Pete R and Micah. I didn’t look like a dummy when I saw the RE agent.
JTW
JTW,
Looks like you need to find out how likely it is that the pizza guy is going to stay. Has he been there for the last 15-20yrs?
What are the comparable rents around the area? And how easily do you feel this property will rent out if they were to leave in May next year?
I’d love to know your interest rate! If I calculate 100% finance, you’re getting 7.1%??? Or 70% you’re getting 10%???
Mate, if you’ve done what you’ve done by accident, the world better watch out now that you’re all focused!
Munjy
Hi again,
Looks like you’re steaming along
Lease expiring next May is very close. Need to establish tenant’s genuine desire to exercise any options as well as likelihood of finding new tenant if necessary. As you say, complete your market research.
Just a couple of other questions.
1. Is the pizza shop a franchisee or company owned? If company owned then more likely to stay if business is doing ok.
2. Is the shop in a busy retail area or in a quiet suburban strip?I had a few small retail shops rented by butcher which then converted to sandwich shop, hairdresser, dry cleaning (Spotless), and an electrician premises. Unfortunately when these were bought many years ago we didn’t know what we know now, and they were in small local strip shops. We found turnover to be high and CG to be poor.
Hope that this is of some more help.
BTW I doubt that anyone who has the understanding you have and who asks questions could possibly look like a dummy. One of the great philosophers once said that he used to feign ignorance to help his students. I have done the same with the exception that I wasn’t pretending!
Best of luck
pr
Originally posted by pete r:I had a few small retail shops rented by butcher which then converted to sandwich shop, hairdresser, dry cleaning (Spotless), and an electrician premises.
Do you mind telling us how long each lease was, the time between leases and how much it cost to refubish between tenants?
Do you recommend staying away from small local strip shops after this?
Munjy
I was going to do some more research of this tennant thing, I would hate to buy it then have it sit idle for ages.
In reply to Munji, yer I was planning on financing 100% and based my assumption on 7%pa interest only. I already have a line of credit to cover that amount. I am not sure what i need to do to ensure tax compliance. Commercial seems more profitable but the risk of getting it wrong are higher too I expect. I have never invested in commercial property before so I am interested in what I can learn from Pete R about his experience with strip shops.
I am looking into a few other deals that are similiar, when I get numbers I’ll put them up for you guys to crunch.
JTWMunjy, in those days the best we could do was to get one year leases with one year options in that area and with those tennants, even Spotless. Spotless and the butcher stayed on for 5 years and 7 years respectivley.
After they left the REAs found new tennants and we were too naive and ignorant and just accepted the agent’s recommendations for the new tennants. The leases were again annual and really protected only the tennants because when they left before their lease expired they simply left…. no way of getting our rent once they disappeared. Eventually sold all those shops and we did make some CG but it was much less than it could have been.
JTW, I wouldn’t say that I would never invest in strip shopping centres again because I learnt from the earlier mistakes and there may be good investments out there. Like everything it’s always important to keep an open mind. In particular the area we were in was not good. Only 5 or 6 shops in the strip, in a lower middle class area. In a major shopping centre with lots of shops and demonstrable stability of tennancies that reflect the presence of good businesses then that may be fine. What we look for now is just that but with good tennants on at least a 3 year lease who have good businesses and assets. That doesn’t eliminate tennants defaulting but it does reduce the likelihood, decreases the risks, and increases the chances of recovering rent should they default.
pr
Thanks for giving us really meaningful detail pete.
Munjy
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