Don't have to lift a finger

[Dazzling]

Had a few champers and wine of late - celebrating the latest acquisition...so pardon the waffle if it reads a bit funny :cool:


Well it seems there is 2 or 3 people around Australia who are interested in what goes on when you actually, really ruly-truly, rinky dinky buy a commercial property.....as opposed to working in the industry for 50 years or studying 'it' in academia, or standing on the sidelines and being an expert commentator without actually putting your hand in your pocket....

I thought I'd do what most very quiet prudent investors do, that is, quickly and conveniently skim over most of the nitty gritty details where you actually learn stuff, and just disclose the boring bits that everyone already knows....:rolleyes:

We hunted around the State for something suitable, with the search commencing in June last year....for us she's been a long fruitless haul compared to how we normally acquire stuff. There have been 5 serious cracks at absolutely fantabulous sites, both here in Perth and Adelaide. We have been consistently passed over and ignored during the last 10 or so months, for two reasons mainly, number 1 was that were always the smallest investor vying for the property, and the Vendors typically had never heard of us and thought we could not complete the deal. The second reason was that we always had a "get out" clause, which is often espoused by the stand-up real estate gurus as being essential. Little tricky hide behind clauses on the contract somewhere, a string if you will, tied to your lump of cash on the Vendor's table, such that if the going got tough you could always yank on the string and exit stage left, leaving the Vendor high and dry.

In the real world of course, all of those "tricks" are quickly seen through by financially savvy Vendors who simply chuck your Offer straight in the bin. No problem if you don't care about picking the asset up and you are dropping 25 Offers all over the place, move on, plenty of fish in the sea apparently....not so good if you've spent the past 3 months and $ 6,000 doing your thorough due diligence on each property. We found there was only ever 2 or 3 crackingly good properties (Land size and position / infrastructure / tenant quality and Lease wording ) worth investigating. This old maxim of "the best deal in a decade comes every other week" we found definitely not to be true. Plenty of dross out there, some that time cannot fix.

Anyway, we joined the rest of the mob, got serious, got rid of all of our Mickey Mouse clauses, and sheepishly dove head first into our first cash unconditional "expression of interest". Felt pretty good, until the Vendor's agent said that our EOI was legally non-binding, and if we really wanted to grab the prop and be serious, it would be better to write it up formally in a contract format. As one of my friends put it - now's the time for your " **** on the block". He has a certain way with words.

I received the Contract of Sale - in a huge big Manila envelope - and commenced reading the Annexures to the main 3 pages of the Contract. The Vendor's solicitors, a team of 3 high powered "senior counsels" had done a real stitch up job with the wording. Anyone that had of just signed it would of ended up in a complete nine line bind - pinned to the wall in a written straight jacket. I knew it was a stitch up job, 'cos the Agent kept on using the word 'standard' in just about every sentence he uttered to justify the outrageousness of the clauses. To the point, where the 2002 General Conditions for the Sale of Land wording had been doctored with no less than 16 exclusions...."The Buyer expressly agrees to delete the following from the contract"....followed by 16 terms specified in the General Conditions whereby the term started with "The Seller must"....or...."The Seller shall"....or...."The Seller warrants". It was laughable.

It took about 2 full hours from 3 to 5 in the morning....when the kids were still in bed and I could concentrate.....to wade through the documents and slash through the ridiculous clauses imposed by the team of Solicitors. In the end it looked more like a bloodbath than a contract, with me tearing the heart and soul out of their wording, to the point where the Contract actually favoured me somewhat.

The Agent confidently swaggered into my office later the same morning to pick up the executed Offer, thinking that he had a real live sucker on the end of his line. It was gratifying to see the expression on his face fall slightly when he started reading the hatchet job I had done on the Solicitor's 'proposed standard' wording. He had to muster every slimy trick in his book to gain the upper hand, but it was a lost battle. I knew I was the only unconditional cash bidder - and he knew I knew.

The Offer was reluctantly submitted, and the Vendor's solicitors were a little taken aback by what I had agreed to. They fluffed up their pristine plumage and tried to hustle me with as much legal waffle as they could muster. I took all three on, and their Master - the Vendor, via a conference call to Sydney. In the end the wigged clowns backed down on their Master's insistence. That's always the trick....ignore the legal knobs and concentrate on the person actually calling the shots - "My esteemed client couldn't possibly".....yeah right !!

So, the Vendor and his merry gaggle of syndicated 17 investors eventually signed the contract and the Agent finally emailed me through the signed and fully executed Contract. Job done - it's ours.

Took the wife into the centre of the CBD this morning and showed her for the first time what we'd bought. She liked the position and liked the outlook.

Tenant is bigger than Ben Hur, and strapped to the wall with a water tight Lease for the next 10 years. They have to do....and pay for....absolutely everything, our obligation as Owner is about as onerous as what a residential tenant has to do - bugger all except breathe and exist.

Everything is managed professionally for us, which the tenant of course pays for as well, so we really need to just sit back and concentrate on the next deal.

Given that the boom has only just got going in the sector we invest in - anything other than residential for about 2 years - and should have another 2 or 3 years at least to go, we are still ramping up, I have high confidence that the rental we can extract out of this place will be through the roof in years to come.

We shall need to pay some attention to this property in early 2017. Other than that, it's set and forget.

Gross starting yield (equivalent to what is quoted for houses) is 9.1%.

Nett yield after all costs (CR / WR / LT / Ins / PM fees / maint) is 6.9%.

Not bad we thought for a do nothing, pay nothing investment right smack bang in the middle of the Perth CBD with a tip top blue chip tenant. Bit like owning a chunk of a trust fund without the lack of control and skimmed off management fees.

The deal is about 55 times as big as our first PPoR. Our philosophy is we'd rather go hard and negotiate on one good deal, rather than gather a never ending clutch of houses with the ensuing headaches and troglodites that brings.

With our next one, we might balance it out with another large tract of stinky industrial land....or, who knows....we might get used to this "do nothing" type of investing. Certainly beats working for a living. :D

Adios.

[redwing]

CONGRATULATIONS DAZZLING (& Mrs DAZZLING)


I would've been stuck at b/c/d and e ;)

After your last deal fell through, I'm glad to see with this one you've come up trumps again; as always, an interesting read as well.



a) Would be physically sick to even step foot on....they are usually great.
b) Cannot afford. This one is difficult, there's always someone financially bigger than yourself.
c) Too scared to even look at.
d) Wouldn't know what they are even looking at.
e) Don't know are for sale.....these are good also.

[Glebe]

Awesome effort Dazzling, you're the man. Fortune favours the brave.

[sailor]

Dazz...I'm so pleased for you. Can't wait to see pics of the building and of you and Mrs Dazz toasting a glass of the finest on settlement day. Good on yer for not taking any legal b/s. This is fantastic news!

[JIT]

Great post Dazzling, thanks for continuing to share your experiences here.

GSJ

[sue78]

Congrats on the purchase...and what a great learning experience. Thanks for sharing the details.

I used to lend money to corporations for these big deals and thought how cool would it be to actually be the one borrowing instead. Your stories are such an inspiration.

You are really in the big boys league now but at least still applying all the basic principles in property investing. It's easier to make mistakes in commercial.

You could rename the building to your name :p

[Norwester]

Dazzling,

Well done. Always nice to see people practicing what they preach and getting ahead.

Makes my pissy little purchases pale in comparison, but at the same time gives me even more determination to get further ahead. Thank you for the inspiration (and the cup of tea the other day..............:o )

Couple of questions if you don't mind..........

1) Where to next ?

2) When are you going to write a book? You have a style that is so down to earth and readable.............If that Carter guy can do it surely you could.

ciao

Nor

[Ausprop]

yes provides me with inspiration!

[Dazzling]

Glad that a few of you got something out of it.

I neglected to mention financing for the deal, that's always the same. The loan was extended covering ;

100% of the purchase price.
All of the stamp duty
All of the other closing costs
One year's total interest bill.

Total loan works out at 115% of the PP.

Plan is to settle prior to end of FY, and pre-pay the loan yearly in advance. This should completely wipe out my entire PAYE tax bill for this year and next. Don't envisage ever paying tax again quite frankly. Happy to just keep paying interest.

Equity base, some residential and some industrial underpins the loan. As mentioned before, we are happily X-colled up the wahzoo. It's amazing what you can do when you don't have all of your loans in separate little protected silos.


Where to next ?? Good question, I suppose we'll bed this one down and introduce ourselves to our new tenants. We'll have to go through the usual paperwork of filing away all of the company and trust documentation, getting a depreciation report done, actually settle on the place and then it'll be time to do nothing for a while.

I reckon Mrs Dazzling is looking forward to a holiday after all of the searching and all of the renovations at home. Mental note - best do that one.

I've got a bit of a hankering to slap up a few big concrete tilt panel warehouses, one that has a 10 or 12m clear span truss that will accomodate the best of tenants. Just to say that I've developed once I suppose.


Write a book....nah....gave that up as a bad joke. Figured out there is too many hops to jump through, way too much time and not enough dosh in that alone, and I really don't want to leverage off the book for a series of stand up investor sessions. Those boys that flog that seminar type stuff, no matter upstanding they come across, are always tarred with the same slimy brush by the Aussie sceptical public. Plus, everyone in this country is too much in love with and only ever wants to talk about their houses and units and apartments.

Nah, I'll follow the grumpy ol Italian and Greek men in this game where they get massive and don't say boo to anyone.

[redwing]

http://john.curtin.edu.au/shapingthenation/images/theme1/1_box1.jpg

An image like this comes to mind, is this what you mean by massive ;)

[nonrecourse]

Hi Daz;
Like you we have purchased a large commercial property after years of investing in our own business properties and a procession of residential investments where all the outgoings came out of our pocket. The first hint of how good commercial property could be was a few years ago when we vacated a premises we owned and renovated it to attract a solid commercial yield. At that stage we were novices at what a commercial tenant would pay and we allowed the agent to talk us out of the tennant paying the normal outgoings etc. The up side was the prospective tennant then approached us at the end of renovations ( we had spent 100K) he then asked permission to spend another 100K on structural improvements and fittings!!!:D

Last year we also stepped into the deep end and purchased another virtually new commercial building with vacent possession. We then hired a commercial real estate agent to find a blue chip tennant. The previous owner had tried unsuccessfully for two years to lease the building out using a local melbourne residential agent and was asking half of what we requested. We also demanded director guarantees and a bond of one years rent. Initially the commercial agent tried to reason with us but we refused to blink. The upside was we had a procession of offers and gradually our asking price started to come within our asking range. The agent couldn't believe the offers we refused. In the end the only compromise we made was dropping the bond to three months.
Everyone told us that no director of an ASX 150 publically listed company would give us a guarantee. Our solicitor said we succeeded because we had the cheek to put it in writting and stick to our guns.

We paid the agent a leasing fee and we manage the property ourselves. As the tennant is responsible for everything our involvement is typing out an invoice once a month and emailing it to head office in Sydney. In the six months the company has operated the premises has had a number of improvements to meet their needs and because they deal direct with us they have an answer immediatly. So we do lift a finger actually two index fingers and the occassional drive by to check the improvements on our investment.:p

[JoannaK]

Dazzling,

my hearfelt congratulations to you and your wife on your purchase!!

please feel free to post pictures for us all!

[Dazzling]

Might just keep it to the inside I think. Disclosed way too much as it is.

[pursefattener]

Congratulation Dazzling , Mrs Dazzling and the Dizzlings .

Love your style . Will be watching this space....

[jopie]

Wow very impressive. would love to know more if you are willing to disclose... :D

[Klausb]

Dazzling, I have been reading various threads of yours with great interest and enthusiasm. Whilst it is enspiring to read such storeys and personally feel commercial property is the way to go, I can't help but feel that I just don't believe it.

The reason is that I doubt this is in reach of the average residential investor. You talk about buying a multistorey office building in Perth that I would have thought was priced around the $20m mark more or less. You claim to have secured 115% finance yet people in finance indicate that 60% is the max likely for commercial property and have varified this from my own property purchase experience, including very large development projects. I am curious about what other forms of security were offered to support finance for this purchase if any? I am also curious about what cash was available to support the transaction?

Or, you are just a very wealthy guy and this is why you can pull these deals off.

It just doesn't stack up for me. Having the financial details behind this purchase would be invaluable in my mind to support what you are saying. Otherwise I am just finding it hard to believe. Sorry. I don't mean to offend, but couldn't think of a polite way of expressing this view. I would be delighted if you could destroy these suggestions of mine with facts and make me eat humble pie. I would learn heaps from this experience :-)

[JoannaK]

Hi Klausb,

Dazzling did start out as an average residential investor, and getting into the larger commercial deals is just the same as getting into the larger residential deals....you just move up with each subsequent purchase.

[redwing]

Klaus,

Having met Dazzling and seen him go through his deals..its true :D 'and' impressive; *dazzled* the bejeezus outa me anyhows and he's now way outa my comfort zone..........................all I can think of is "one day" :D

Reminds me of an older italian gentleman I knew who owned a panel beating shop, then a few Industrial Property's with his partner, then more, then more (he also couldn't undertand why I was into residential by the way); I guess from small beginings great things come :confused:

[macca22]

Hey Dazza I have been reading the forum for a few years now and have soaked up most every detail and strategy there is on resi property investing. I have a ppor and 2 ip's in Adelaide and i can say that the only posts i am interested in nowdays are the posts on commercial properties etc as i find them to be the logical next step in this "game"
All i can say is to keep up the good work and to keep the forum informed about what you are upto because you seem to be the only one in the commercial game at the moment that is willing to share anything with the rest of us.
I personally am glad that the forum has created a specialist forum for commercial investing as i did notice that any such posts on this topic have been met with some resistance by the resi guys in recent years and i can say that i have learnt alot more about com the last year that you have been a regular contributor than before when it was seemingly a "taboo" subject.
Salute, Dan

[JIT]

...commercial properties etc as i find them to be the logical next step in this "game"...

...has created a specialist forum for commercial investing...

Yes, it is a logical next step in the property game. Some would say you start off in buy and hold resi., then maybe do renos, then move on to sub-divisions or other property developments...but, I feel that skipping the 'renovation/development' part of resi. and going into buy and hold comm. investing is just as logical a progression. You can remain an 'investor' in property, and to some extent stay out of the realm of the 'developer'.

This specialist forum for comm. property investing is the very first one created specifically for Australian investors. Overseas, in the UK and US, there are dozens of comm. property investing forums, with far, far more threads/posts.

As I've said before, I would hope that this forum grows to be more like these ones in the future.

GSJ

[quoll]

I think you will find Dazz has borrowed against the building maybe 80% or more and the rest is borrowed against other property which is why the reference to "Xcol to the hilt".

There are commercial property lenders out there that will lend upto 80%-90% you find them advertising in the business for sale section of the paper, little ads, lots of text not much else you miss them if not looking.

Daz can elaborate if he wants to.

Thanks for the post Daz nice to get an insight into the commercial property arena.

Cheers
quoll

[Klausb]

I think you will find Dazz has borrowed against the building maybe 80% or more and the rest is borrowed against other property which is why the reference to "Xcol to the hilt".

There are commercial property lenders out there that will lend upto 80%-90% you find them advertising in the business for sale section of the paper, little ads, lots of text not much else you miss them if not looking.

Daz can elaborate if he wants to.

Thanks for the post Daz nice to get an insight into the commercial property arena.

Cheers
quoll
Quoll,

thank you very much for your feedback. This is the first response I have had that has actually included any detail of any value. Dazzling, don't get me wrong, I very much want to "believe", but without the details, it is just a good yarn and of no real value to me.

Would welcome hearing from you Dazzling with some details that may guide me (and perhaps others) to understand how these deals can be done in the way you outline, which I am eager to undertake as well.

THANSK!

[JIT]

Would welcome hearing from you Dazzling with some details that may guide me (and perhaps others) to understand how these deals can be done in the way you outline, which I am eager to undertake as well.

THANSK!

Didn't Dazzling have a story on him in API last year? Maybe there were details there? I might be mistaken though...

GSJ

[Dazzling]

Quoll,

thank you very much for your feedback. This is the first response I have had that has actually included any detail of any value. Dazzling, don't get me wrong, I very much want to "believe", but without the details, it is just a good yarn and of no real value to me.



Sorry KlausB,

You've asked twice now, but I'm not prepared to go any deeper. Your "belief" or lack thereof is of no concern to me. I ain't got nothing to sell. What you've asked is of no real value to me either....so there you have it, we're even Stevens.

The three posts in this thread, along with my other posts from other previous ventures are about as detailed as you're going to get from me. Loose lips sink ships and all of that....I am constantly castigated from my better half over disclosing too many details of our deals.

If it ain't enough, then I'm afraid the info shall have to be relegated to your yarn category, but I'm not prepared to go any further.

What I've outlined is way way way way more than anyone ever gave me to get started. Thinking back to the elderly gentlemen who I asked face to face for details at the start of our journey, I can only shudder at their response. If I typed it here, ol Geoffw would probably suspend me.

If you are really hungry for knowledge, then you are going to have to take far more drastic action than asking me on a website. That doesn't show any commitment on your part. I'm a dreadful coach and lost my spoon ages ago.

Dip your toe in your local water and see how you swim. You cannot possibly be an expert swimmer by standing by the side of the pool and asking for exact details on what it is like in the pool.

There's only two things you need to do ;

1. Start
2. Keep going - no matter what - until you get where you want to be.


I reckon that goes for everyone else as well. I've lived by this philosophy for quite a while now. :)

[jingo]

Congratulations Dazzling (and Mrs Dazzling),

I also read your other thread where you missed out on the property you had your eyes on.

Dazzling, I find your whole situation quiet amazing!! I really enjoy reading your posts - thanks for the information you freely give. I'm still swimming in the Resi pool, but am reading as much as I can about Com, and rekon I will jump soon!!!!

Regards Jason.

[geoffw]

Daz

You've shared heaps in your contributions so far, and it is very much appreciated.

You haven't typed in any names which can get you into trouble, so it's all good.

(Footnote for others. We do try to be careful of adverse comments where people or companies are named. Those sort of posts can get us into trouble- they have, at times, caused us trouble in the past.)

You've gone down a path which goes well beyond what any of us have been down. You've played to rules which haven't worked for some of us. X-coll (cross collaterisation) was a huge headache for me, even though it helped me get down a path I would not have been able to go down otherwise.

For many of us, we have learnt from the experiences of everybody else. We all know, and are all familiar with, residential property. And we all know about dealing with banks (if not personally, from posts in the forum).

The shared wisdom of many people becomes the common knowledge of many more people.

And then people come along who have succeeded, far beyond what most of us could ever do, following a different procedure, and, at times, breaking all the rules which we have been constrained by.

Daz, you provide a sparkling (or even dazzling) inspiration for anybody who wants to succeed.

But it is a "road less travelled". There's not so much knowledge out there. Daz, you've explored an unknown area, and struck gold. My brother in law has struck a lot of gold as well- slightly later in life, I suspect, but with a pretty large nugget by now. There is more gold to find, I'm sure.

But, the people who are not careful may find themselves lost down a dead end. The road less travelled has its own problems. There's not as many maps. There's probably more dead ends.

And there's certainly not the amount of publicly available knowledge as there is in this forum.

Not yet anyway.

[JIT]

Quoll,

thank you very much for your feedback. This is the first response I have had that has actually included any detail of any value. Dazzling, don't get me wrong, I very much want to "believe", but without the details, it is just a good yarn and of no real value to me.


Klaus,

There are quite a lot of details that have been shared in Dazzling's posts (have you read them all?) as Geoff says. I don't think knowing the numbers behind the deals is going to help, they're just really big! (eg. MM instead of K's). Understanding the basic investing principles/ideas/strategies behind the deals is more important. We're discussing smaller deals, ie. involving smaller numbers, with the same basic principles involved in this thread here, which you should read:

http://www.somersoft.com/forums/showthread.php?t=32060

GSJ

[grossreal]

hi all
I have read with interest dazzlings answers and I only have one thing to say.
I read alot of posts from alot of people and it seems to me that alot of people seem to want the teacher to explain every little detail instaed of taking the information and trying to work it out for themself.
these forums are a wealth of information but thats all they,
they are information
the number in a deal are the number for the dealer
and I would be very supprised if most of them every get to a board.
in answer to can you get above 85% on a comm yes you can.
comm lending or comm borrowing is not done as resi lending
it is done on a case by case basis and for me the information of anyone on a board as to how they fund or the numbers are not the main point.
I think any information from a dazzling of this world or for that matter coasty mike or any one is information that is given free so instaed of asking are you for real how did you get to this or how did you get a lender to give you that you need to learn that its out there and ask your funder.
and in comm suncorp go between 56% lend in some cases up to 75% in others and it depends how you present and who you know
thats just fact.
for me I hope you do well dazzling and hope to pop over one day and have a drink.
I think there seem to be alot of people that are trying to look at the teacher instead of looking at the lessen.
but that just me.

[bonecrusher]

Hi all

I admire any property investor whatever type of investment they succeed in.

I also feel that wanting to know specifically each deal and numbers etc on an open forum or even privately unless willingly shared is probably stretching it.

My thing has not been to know persons personal deals but the traps one can get themselves into.
This to my mind is far more valuable,a persons experience and indicating what not to sign into.

After all if you buy a Commercial property it is not like buying a pair of shoes if the legal contracts have some traps you are not aware of or have missed or your solicitor doesn't do the right thing by you it can set you back years.

This type of sharing would be invaluable to my mind. (Dazzling did say he had to go through the contract with a scalpel so to speak).

Be it a
Resi Contract
Industrial
Commercial
Retail

Congratulations Dazzling


Cheers
BC

[keithj]

I feel the opposite. These sorts of posts make good stories that are enjoyed by a certain type of forumite. However, they contain virtually no info that's useful to a prospective comm IP investor.

He could tell us -


high level info about the loans - LVRs, Interest Rates, other loan conditions.
Why it's such a good deal.
Compare it to other comm props he's looked at & why he chose this one
Tell us what the rent is indexed to, rentals reviews, etc
When it will be c/f +ve, when will it let me retire.
The risks of this particular prop.
Tenent mix.
Where this comm IP is in the cycle - is this the peak or will there be growth above rental income?
What growth this IP is expected to have & why
Compare it to LPTs that have higher nett yields & arguably lower risk.
How it will impact the rest of the portfolio.


All without using the actual figues or personal details.

[JIT]

He could tell us -


high level info about the loans - LVRs, Interest Rates, other loan conditions.
Why it's such a good deal.
Compare it to other comm props he's looked at & why he chose this one
Tell us what the rent is indexed to, rentals reviews, etc
When it will be c/f +ve, when will it let me retire.
The risks of this particular prop.
Tenent mix.
Where this comm IP is in the cycle - is this the peak or will there be growth above rental income?
What growth this IP is expected to have & why
Compare it to LPTs that have higher nett yields & arguably lower risk.
How it will impact the rest of the portfolio.


All without using the actual figues or personal details.

Hi keithj,

Good points and questions. Not sure why no-one has directly asked this, until now. Maybe because the deal itself is so, so far away from what people here can realistically do...Would be interested in some of the answers to understand the decision making/evaluating process in such comm. deals. This could be applied to the <$500k deals we're talking about in another thread.

Thanks,

GSJ

[Klausb]

Dazzling, thanks for your response. I can but only ask and it is fair to me that you have opted to decline with more details. It is a pity however as I hear lots of great yarns from investors and all too often not enough detail for it to actually be of any value. I also get skeptical when I hear of 117% borrowings without at least a little more info to put this into context.

I plunged into property some time ago, including property development. I have not yet plunged into commercial property albeit have had a crack at it without success at this stage.

I like what it is you seem to be doing, but unfortunately, the forum info is of little value to me. Guess I will just have to search elsewhere.

Again, thanks for stating your position.

[Dazzling]

Keithj,

That's just scratching the surface what you have listed there. There is a massive amount of due diligence that needs to be done before finally signing an unconditional cash contract to buy a property that is multiples in value of most investor's entire portfolio's. Numbers count, and big numbers count even more.

Because this is a numbers game we play, I only look at the numbers. Emotion, general principles, over-arching philosophies, common wisdoms and other fluffy feelings don't come into it.

You ask about LVR's....well it's simply a number. No go.
You ask about interest rates....well it's simply a number. No go.
You ask about other loan conditions....well the important conditions involve a number. No go.
You ask about why it's a good deal....as stated above, simply because of the numbers. No go.
You ask about comparing it to other deals and why I chose this one....as stated above, simply comparing numbers. No go.

The rent is indexed to a floor area - a number. The indexation rate is a number. The future rent escalation rate is a number. The rental review date mechanism is simply a number.

The cashflow amount of the deal I have already foolishly divulged, and been castigated severely for...but oh well. That too was just a number.

The risks of this project has been evaluated through my scaling mechanism and numbers assigned accordingly, pumped through my risk matrix and a number popped out. Viola.

The tenant mix I have already divulged. It was a number. Tenant quality wasn't a number, so I can confirm it was very good. I have however already said they are bigger than Ben-Hur. I also stated lease length - which was also just a number.

Where are we in the cycle, well the cycle is described by a certain number of years, and we are a certain number of years into it. I've divulged this already in another thread. Both are numbers.

What growth is this expected to have ?? Well it all boils down to either a number or a range of numbers. Or would you prefer good or very good. It means nothing without a number.

LPT's - dunno, too busy bashing away doing my thing to worry about them just yet....not enough time in the day to concentrate on them as well. When I get big enough, hope to start my own up, and then get people like you Keithj to buy into my own LPT at highly inflated retail prices, when I've picked them up at vastly reduced wholeslae prices. At that stage, I might show you some numbers. :)

How will it impact the rest of my portfolio. It'll impact it on both an LVR, cashflow and future growth level - all of which can only be described by numbers.


As I've stated many times before, this game we play is simply a big numbers game. Without the numbers, or introducing some fairy tale numbers, the whole thing is a sham. 43% it's a winner. 5% it's a dud. Plucking numbers out of the air to explain an over-riding principle just makes a mockery of the whole exercise.

We have a blank standard format we use to assess a property. It's a huge big list with a blank in one column where we simply fill in the numbers. Without the numbers, the whole thing is a waste of time from an investment decision p.o.v. Now simply discussing executed deals on an open internet forum with the intent of simply having a chat, whoa back - that's a whole different ball of wax.


Keithj, sorry you didn't get a warm fuzzy feeling about my humble story. Happy for you to elaborate though on your investment journey.

I get the feeling everyone wants more numbers and to be led by the nose every step of the way. This ain't gonna happen.

I'd suggest you buy one of two CIP's and plop down the deal on an open forum and let everyone else tear it to shreds and see how you go. It may be an interesting exercise, and a tad more confronting than sitting on the sidelines.

Enough's enough, I'm going to bug out of here and go play with the kids.

[APerry]

He could tell us -

high level info about the loans - LVRs, Interest Rates, other loan conditions.


Hi Keith,

If you have any queries about commercial finance I'd be happy to answer them, writing these loans is how I feed my family. I can tell you upfront though that for larger deals everything is negotiable and is heavily dependent on the strength of the property and borrower.

I would also like to add that this forum is lucky to have someone like Dazzling posting so often. Generally people doing larger deals have no interest in telling anyone else about them.

Regards
Alistair

[Andrew_A]

I think this might have been covered before.

What would be a decent first area to investigate in the commercial arena for a first time investor.

Something that would prove to be a good stepping stone. Maybe one area is just a better place to start than another? For example you would have to suggest residential real estate as a great place to start for anyone interested in investing as it's so forgiving of mistakes.

I don't want any more vanilla buy n hope resi properties, have been considering developing, but also commercial property for the future. I really like the passive part of Dazzling's scenario :)

[JoannaK]

I think this might have been covered before.

What would be a decent first area to investigate in the commercial arena for a first time investor.

Something that would prove to be a good stepping stone. Maybe one area is just a better place to start than another? For example you would have to suggest residential real estate as a great place to start for anyone interested in investing as it's so forgiving of mistakes.

I don't want any more vanilla buy n hope resi properties, have been considering developing, but also commercial property for the future. I really like the passive part of Dazzling's scenario :)

Hi Andrew,

I would suggest that a great starting point for someone wanting to enter the CIP realm would be either retail or strata office suites. Both have a reasonably low entry point and provided they are well located usually don't have too much problem with vacancy.

I wouldn't advise going industrial or bulky goods as a CIP virgin, I think this sector takes a little more nous and stomach.

CIP is totally different to resi, and it is a real eye opener once you get into it, but I totally love it and would buy CIP over resi any day....but am continuing along the resi road as well for the sake of balance in the portfolio.

Of course, this is only my opinion and I could be wrong :)

[keithj]

If you have any queries about commercial finance I'd be happy to answer them, writing these loans is how I feed my family. I can tell you upfront though that for larger deals everything is negotiable and is heavily dependent on the strength of the property and borrower.
Hi Alistair,

Thanks for the offer.
As an example.....
About 6 years ago I was interested in a retail strip - 13 shops zoned LMR fronting a v. pleasant suburb square. Good location 10km from Bris CBD. It yielded 13.5%, with one shop vacant. The tenants were nothing special, all small local business. They wanted $1.75M. The best finance I could find then was 65% LVR. I couldn't quite stretch to get the deposit together.

What sort of a deal could you offer me if I find a deal like that today ?

Cheers

Keith

[APerry]

Hi Keith,

You can go up to 85% LVR in capital cities at reasonable rates, servicability requirements are pretty strict at this level however. If you can handle 75% LVR you have a much wider range of options and rates would be substantially better, sometimes you can stretch these out to 80%, but its difficult and you'd have to be in a very strong financial position for it to go through.

At 65% if there is a good lease and tennant you can lend without giving guarentees (non recourse). A lot of Chris Lang's clients use non recourse loans.

Regards
Alistair

[XBenX]

Cashflow contigencies for mitigating vacancy risk are IMHO the most important strategy (as we all know Comm/Ind vacancy rates are on average far higher than residential property)

Whilst I have not traded through a recession (I was in primary school the last time one occured) I have seen the effect on comm/ind property holdings during a recession on my family (who did have the benefit of what I mention below)

I worry that without diversification (either multiple buildings or tenants) or significant available equity (to meet interest repayments during vacancy) any downturn in the economy and resulting decreased demand for these comm/ind properties will leave the sector hurting - and a lot of small investors burnt.

This isnt residential property, you cant always get another tenant, even by lowering your rent by 10, 50, even hundreds of dollars a week sometimes because of cylical/structural changes in demand.

Yield on purchase price atm is at levels Ive never seen before - comm/ind is selling at 6% gross yields (now whilst we here are not suggesting taking deals like that - it shows the competition that is out there)

Even yields at current construction costs arent looking all that attractive.

[keithj]

You can go up to 85% LVR in capital cities at reasonable rates, servicability requirements are pretty strict at this level however. If you can handle 75% LVR you have a much wider range of options and rates would be substantially better, sometimes you can stretch these out to 80%, but its difficult and you'd have to be in a very strong financial position for it to go through.Thanks for that. Can you give an indication of current rates at those LVRs.

What is servicability criteria like ? Do they accept 100% of nett rental income ? Do they do equity lending - ie a standalone loan based on income solely for the CIP - how strong does the tenant/lease have to be ?

And presumably they lend anythng from $100K - $100M+.

cheers Keith

[handyandy]

Hi Alistair,

Thanks for the offer.
As an example.....
About 6 years ago I was interested in a retail strip - 13 shops zoned LMR fronting a v. pleasant suburb square. Good location 10km from Bris CBD. It yielded 13.5%, with one shop vacant. The tenants were nothing special, all small local business. They wanted $1.75M. The best finance I could find then was 65% LVR. I couldn't quite stretch to get the deposit together.

What sort of a deal could you offer me if I find a deal like that today ?

Cheers

Keith

If you found it now at that sort of return you would need to seriously look at how you could get the money together;).

Reading through this thread reminded me of all the circulars that used to come in the mail advertising 12-15% returns with substantial leases and director guarentees in place. This was most probably late '90s and I decided to stay with resi for various reasons but the main one being security of cash flow.

Cheers

[grossreal]

hi keith
I wont write you a loan but I will tell you that today there are a number of lenders that will write a 85% loan and thats 85% of valuation not purchase price.
and the interest is around 8 to 8.5% and it can be fixed.
they are stand alone and they are off the back of the lease.
you do find lender that will term deposit an amount of money to cover the repayments and for that you can reduce your interest rate.
this is not a market for everyone and everyone needs to mitigate risk so I do not recommend it to people that have not done very good research as yes you can have property that takes months if not years to lease if you pick wrong.

[keithj]

If you found it now at that sort of return you would need to seriously look at how you could get the money together;).Hi handyandy,

You can be assured that I seriously looked.

And the deal was even better than that - it was zoned for 3 stories, the 3rd storey would have had sea views. I didn't get as far as costing a complete redevelopment, but 13 shops, below 13 offices, below 13 apartments with sea views, would have made a nice retirement plan.

cheers keith

[keithj]

I wont write you a loan but I will tell you that today there are a number of lenders that will write a 85% loan and thats 85% of valuation not purchase price.
and the interest is around 8 to 8.5% and it can be fixed.
they are stand alone and they are off the back of the lease.Thanks for the hard info gr. Can you name some lenders ?

you do find lender that will term deposit an amount of money to cover the repayments and for that you can reduce your interest rate.Can you explain this sentence a different way.

this is not a market for everyone and everyone needs to mitigate risk so I do not recommend it to people that have not done very good research as yes you can have property that takes months if not years to lease if you pick wrong.Absolutely. It's all very well not having to lift a finger when the times are good with a quality tenant. But you've gotta be able to handle the bad times too - think years without a tenant during this recession that we keep hearing is about to happen.

cheers keith

[grossreal]

hi keithj
icf, is one off the bat but there are others that I don't want to put on a board as I use them a bit.

quite simply a lender will term deposit an amount of money to cover if a tennant stops paying there rent,
so you can sell the property
and in doing this you get a lower rate as there is a lower risk.
in sydney alone ( not including outside sydney) there are about 2000 lenders and lots of micro lenders, super funds.
I uncover about 5 a week and these I would never have thought they would be in lending but they are.
I have just found ray white of all people in the last month.
I have lenders that will go to 90% on comm super fund (not ray white)and before you ask no I won't put them up on a board.
it is good to think that a recession is around the corner
but they said that in the great depression that alcohol sales would die and that just doesn't happen
I have been thru more depressions than I would like to go thru
but you adjust and as long as you buy quality instead of quantity you will sail thru.
my tennants could have a nuclear bomb it us and they would still be sell feed.
my new tennant could have the market fall thru the floor and people would still want to eat.

three things to invest in
food
shelter
and finance ( this is my favourite its just to good in real estate at this time)
and if you buy a building with a food outlet/ or a supplier of a food item that is needed
and you fix your rate you will be ok recession or no recession.
lots of people push gloom I am looking for investments that are secure with or without recessions.
you can't gaurentee anything in life
its no point in me quarenteeing an investment for 5 years and the next day you get hit by a bus.
simply nothing is sure in life.
you work out risk at today not tomorrow.
if you get a valuation, a lender will tell you that its only good for the day its done
thats why its got a max 3 month life.
you need to evaluate on the spot and decide to invest or not invest from the data you have gained.
my rules
quality is number 1
tennant is number 2
term is number 3
sellability if need be is 4
and last is available funding
because if the rent doesn't cover the loan its no good anyway.
and no it does not in my book have to cover from day one ( some people think it does but we all have different criteria)
for me it has to have a way of getting to coverage within the first term of the lease.
I also don't like government tennants(again some love them) for me they are to hard to deal with.
give me a md/chef/chemist anyday.
but thats my .002
and keithj if you find that you have deals that are to big to bite yourself thats what networking is all about.
most brokers hate me saying but you need to pitch your deal to lots of brokers because I am yet to find one that deals with all the lenders in sydney alone.
and there is very few that are the same
the majors are different
never mind the second tier lenders.
here is a few areas that are into lending
banks we know them
listed super funds
large organisations and there private super funds
large real estate agents ( most have a lending arm)
building companies( most have a external lending arm)
large solicitors organisations (using there trust funds)
foreign lending institutions with offices.
I have one I found about two weeks ago and it is a lender here in sydney and its claim to fame is that its one of the largest powerstation operators in indonesia and its funding is from there
and who would be able to find them.
but yes here are funder out there
anyone that says I can't find funding to me is just not looking hard enough or the deal doesn't stack up.
and in both cases thats in the planning.
and reading your last post with regards development funding thats a completly different type of lending and again there are specific lenders that like that type of lending and I won't get started on that.
comm and development funding is an art in itself if you want fluid lending.
and reading dazzlings post he has someone with a fluid pen.
my ink is running out so its no point asking me to use my fluid pen.
thats my .002

[kph]

Mamma Mia !!
How long was that post ??

[grossreal]

hi kph
I was going to cut it down but thought na

[Mofra]

hi kph
I was going to cut it down but thought na
Sheesh, glad you didn't cut it down - quite alot of peopel wouldn't have given that much of their gameplan away!

Very much appreciated, cheers :)

[grossreal]

hi Mofra
there is non of my game plan in it.
this is just information that lots of people have
they just don't tell everyone
like its some sort of secret.
I have my plan and I let people understand what out there and I am still learning.
I only put up deals that are done or can be learnt from.
I have a very tight time line and I don't go to the boards as often and if this help fine.
this is not my work it the types of lenders
people think to much on banks 80% lvr and your capacity to pay.
this just is not the case.
I did have one manager ask me once how I was going to service a loan
the loan was 29 mil I look at him, the merchant banker, and his boss
and simply asked
is he for real.
did he want a three payslips, an accountants letter to say I could cover it.
they just laught.
I invest on my own terms and if some one trys to see where I will invest next they are doing better then me.
but I hope you understand it and learn

[APerry]

Thanks for that. Can you give an indication of current rates at those LVRs.

Citibank's carded 85% LVR product is currently at 9.13%, it is generally better at higher LVR's to do a blended product eg you use an interest only loan for 70% at prime rates, 10% also at prime rates, but P&I over a short period eg 5 years and the extra 5% at unsecured rates (generally a couple of percent higher) ammortised over 3-5 years. Don't take this as something you could definately do, but it is an example of a possible structure for getting 85% LVR relatively cheaply, the idea would be to get the property revalued after 12 months and get the whole loan into the the IO bracket.

Rates in the commercial market have been going up as bank bills are quite high at the moment, we are placing most smaller loans at around the 8% mark. The 90 day bank bill, is currently at abount 6.7%, most larger loans are set at a margin above this. The lowest margin I have ever successfully negotiated is 0.81% so in the current climate that would put the rate at approximately 7.5%, that was quite a large loan though.

What is servicability criteria like ? Do they accept 100% of nett rental income ? Do they do equity lending - ie a standalone loan based on income solely for the CIP - how strong does the tenant/lease have to be ?

Servicability criteria varies very widely between lenders. Some have servicability calculators for smaller loans, but generally they look at interest coverage. There is massive flexibility in terms of things such as how much rental they will accept and it is heavily dependent on a combination of the strength of the borrower and the deal itself. There are plenty of asset lenders and lenders who require relatively little in the way of income verification, they are generally more expensive but often not appreciably so.

And presumably they lend anythng from $100K - $100M+.
Pretty much any amount. Smaller lenders often have limits, especially if they raise money through a mortgage fund eg there is a small lender I use quite a lot that has no money at the moment as it is all loaned out, so any amount is too much. Often there are trustee guidelines prohibiting smaller lenders from lenmding more than a certain % of their money to a particular lender or on one project, but this only affects people borrowiung a hell of a lot of money.

A comment with regard to Gross's comment on the number of micro-lenders. There are a lot, but most of them are really just brokers and get their money from the same sources. Bank finance is pretty much always the cheapest and should be your first pint of call, if the situation requires a little extrra flexibility or reduced income documantation then mortgage funds, who raise and control their own funds are often very good (larger examples of these are Challenger and Perpetual, there arer also some small niche players that are very good for specific situations).

[Dazzling]

Dazz...I'm so pleased for you. Can't wait to see pics of the building and of you and Mrs Dazz toasting a glass of the finest on settlement day.

Well, we just had 'the call'....settlement just went through. That's the first peg in the sand for part of the CBD. Now onto bigger and better things.

Settlement was scheduled for last Friday arvo, but there was a problem with the security bond. The tenant hadn't paid it when entering the Lease and no-one had chased it up. That's now in the bag (6 months worth of both gross rent and all outgoings) and so settlement proceeded.

We took the whole family on a show-and-tell last Wednesday for the final inspection. They couldn't believe we were buying something like this, with it being so nice and corporate like, with a pleasant tenant fully installed, and more importantly with a pocketful of cash. They were all used to our rubbish filled trucking yards and scrappy industrial blocks, evicting dodgy and violent non-paying tenants. This really is a breathe of fresh air having everythign done for you. Pay through the nose mind you for the privilege, but sometimes it's worth it.

Anyway, now that it's settled, we might sit back for a week or two before having a serious crack at something over in Sydney.

Life's good. :)

[Mark Laszczuk]

Nice one Daz. Good luck finding the next one!

Mark

[sailor]

Congrats again Dazz! There's no keeping a good man down eh! One in the bag and ready for the next. Good on yer!:D

[Welcome]

That's the first peg in the sand for part of the CBD. Now onto bigger and better things.

First Perth CBD, next the world :D

Good work. Always appreciate your posts.

[Grego]

Great post

Haven't invested in comm prop yet but definately interested.

Was at a luncheon recently where there was a panel of experts from various commercial property co.s I'm talking CEOs etc of public co as well as finance commentators. There underlying message seemd to think that there is going to be a shortage of commercial office space (in Sydney) in the coming years and
there were predictions of rents rising by 30 to 40% (sydeny CBD) in the next couple of years.

They also thought that eco friendly (not sure exactly what is meant by that) office space would become in vogue and be able to demand a premium.

Gross has outlined some basic criteria for commercial prop investment.
Would anyone be able to elaborate on what selection criteria/ lease terms
etc etc I should use as a basis for my comm prop search?

eg: I have found a small commercial office space in Pitt St Sydney $200-$300K
returning 6.9% (Yet to confirm whether this is gross or nett)
Art Deco building, tenant in place. However thats as much as i know at this point in time,
BUT would like to know what I need to ask agent and what pitfalls I need to be aware of?

Is Strata the best in Commercial property?
What alternatives are there?

Any info appreciated
Thanks
Greg

[Mofra]

Was at a luncheon recently where there was a panel of experts from various commercial property co.s I'm talking CEOs etc of public co as well as finance commentators. There underlying message seemd to think that there is going to be a shortage of commercial office space (in Sydney) in the coming years and
there were predictions of rents rising by 30 to 40% (sydeny CBD) in the next couple of years.
Extremely interesting - by all accounts (and I'm also paraphrasing Chris Lang) the rule of thumb is a 18-19 year property cycle, expected peak 07-08.

Supply and demand set to break the old property cycle, or will interest rate rises fulful the expectations? Bond players almost certain of a 25 basis point rise by the end of this year.

[JIT]

Would anyone be able to elaborate on what selection criteria/ lease terms
etc etc I should use as a basis for my comm prop search?


Hi Grego,

See this thread below. I was trying to establish some criteria/guidelines for comm prop investments under 500k in this thread below but it lost its steam, and my investment objectives have since changed, but it may be of interest.

http://www.somersoft.com/forums/showthread.php?t=32060

GSJ

[Raja]

Hi Dazzling,

Really good to read some of your posts on here as I have only recently joined. One thing you said:


Dip your toe in your local water and see how you swim. You cannot possibly be an expert swimmer by standing by the side of the pool and asking for exact details on what it is like in the pool.


I think that is really important. One needs to take action in order to gain experience and learn by mistakes along the way.

One question I have for you though, when you first started out in just IPs did you have a specific loan structure worked out that you intended to carry through into commercial? Or did it change over time as you saw fit?

I am only starting out myself at the moment with 1 IP last year and buying my first PPOR at the moment.

Regards,

Raja

[Dazzling]

I justed rolled with the punches on the first non-ressy loan, 'cos I had absolutely no clue....but that didn't hold us back.

We jumped in boots and all and started splashing around. Finance was the same as our houses, same as the contracts to buy. Despite everyone thinking their are big scary monsters around every corner when you diverge away from houses and units....it's all quite similar when you get down to it.

Looking back, we weren't that methodical and studious with our decision making, or that deliberate with our strategies. Sounds way too structured and organised for me. The wife and I are not robots, and we never act like robots. Rolling with the punches as they come through sometimes opens up fantastic opportunities that wouldn't be there if you rigidly stuck to some formula.

We initially just bought what looked really good and setup, cos we didn't know any better. It's been OK I suppose, providing about $ 400 p.w. free cashflow initially, now up to 660 p.w. Capital growth however has been cr*p, growing only 600K in 3 years. Looking back, we should of bought a vacant block of land with the dosh....would of been far in front, but as usual serviceability always bites.

We then graduated to utter dumps, with lotsa headaches and either no tenants or either lots of tenants, none of whom paid a cent a rent. This is usually what everyone fears the most, buying some nice well to do place with a tenant who ups and leaves and then they are left holding the can with no rental income. This scenario of no tenant and no income initially was our specific strategy....conquering other greatest fears and turning it around. They have been the ones where we have made the most money - by far.

This thread discusses our most recent one, where once again everything is done and the tenant is nice and safe and secure. We think we already know what the outcome of this one is going to be....a bit of nice cashflow but bugger all growth.

We've decided to go back to our old stomping ground of ugly warehouses with either no tenants or accompanying ugly non-paying tenants....much more moolah fixing up those basket cases, and I suppose a bit of a challenge. There's nothing like controlling big chunks of land that are cashflow positive with a bit of work and a bit of negotiation with a malleable tenant.

[Celeste]

Hi Dazzling

Well done - looks flash!!, next time I'm in town I'll do a little foyer browsing and see if I can identify your latest purchase. L.O.L :D

I am with you on the disclosure side of things, I thought initially giving as much info as possibile a good thing. I now have other ideas, I have found that the most valuable info is "where and what to research" numbers mean little as every deal is different and each investor has a different end result in mind.

I see you have going back to dumps, it is very satisfying taking a pigs ear and turning it into a silk purse. I love that bit, the standing back at the end and admiring my handy work with great satisfaction.:D

[markp]

Anyway, now that it's settled, we might sit back for a week or two before having a serious crack at something over in Sydney.

Life's good. :)

Why not invest in the US, given the current collapsed US dollar?