For the benifit of budding Commercial Investors....
Due to the residential market peaking, I decided to buy my first Commercial property. I was after positive cash flow and looked to Brisbane to find it.
Late 2003 I purchased an Office/Warehouse: (280 sqm) for 470,000 with as an ongoing concern with a 3 year lease (extended at my request).
Return - 9.2% + outgoings paid by tenant
Location - 3k north of Brisbane CBD
Thought I would self manage. Applied for an ABN and registered for GST. Looking good! until rent was due...Here began 12 months of suffering...Phoning tenant, chasing late rent, broken promises etc... I ended up getting about 2/3 of the rent due to me. Finally my legal advise, late 2004, was to ask the tenant to leave and it wouldn't be worth persuing the arrears due to:
1. Two dollar company
2. no director garantees
3. no bank garantee
4. they were going down
They left.
I still had a lot of faith in the property. All I needed was a new tenant. It took 6 mths to find a new tenant. The offer was signed @ 46,000 gross and with some more frustration was converted to a lease 2 months later (complications made it take longer than the usual 14 days).
The tenants are now settled in.
The property is being professionally managed by an agent.
The Botton Line:
I am now inducted, I'm no longer a commercial novice, I've suffered a lot, I've learned a lot, the only way is up!
Major lessons:
1. Get a bank garantee or a Directors garantee. ( I prefer the cash)
2. Personaly I believe managment by an agent is the way to go.
3. Don't consider an offer to lease as a garantee that a lease will be drawn. Try to make offers non binding for you so you can look at other offers if a better deal comes along at the same time.
4. Make sure you can handle a 12mth vacancy. Mine took 7 months
5. Open list with a couple of agents, when looking for new tenants, if the property is vacated. Gives you much more exposure.
The upside:
The property is now worth @ $ 570,000
Happy Commercial Investing.
Cheers
MJK
Due to the residential market peaking, I decided to buy my first Commercial property. I was after positive cash flow and looked to Brisbane to find it.
Late 2003 I purchased an Office/Warehouse: (280 sqm) for 470,000 with as an ongoing concern with a 3 year lease (extended at my request).
Return - 9.2% + outgoings paid by tenant
Location - 3k north of Brisbane CBD
Thought I would self manage. Applied for an ABN and registered for GST. Looking good! until rent was due...Here began 12 months of suffering...Phoning tenant, chasing late rent, broken promises etc... I ended up getting about 2/3 of the rent due to me. Finally my legal advise, late 2004, was to ask the tenant to leave and it wouldn't be worth persuing the arrears due to:
1. Two dollar company
2. no director garantees
3. no bank garantee
4. they were going down
They left.
I still had a lot of faith in the property. All I needed was a new tenant. It took 6 mths to find a new tenant. The offer was signed @ 46,000 gross and with some more frustration was converted to a lease 2 months later (complications made it take longer than the usual 14 days).
The tenants are now settled in.
The property is being professionally managed by an agent.
The Botton Line:
I am now inducted, I'm no longer a commercial novice, I've suffered a lot, I've learned a lot, the only way is up!
Major lessons:
1. Get a bank garantee or a Directors garantee. ( I prefer the cash)
2. Personaly I believe managment by an agent is the way to go.
3. Don't consider an offer to lease as a garantee that a lease will be drawn. Try to make offers non binding for you so you can look at other offers if a better deal comes along at the same time.
4. Make sure you can handle a 12mth vacancy. Mine took 7 months
5. Open list with a couple of agents, when looking for new tenants, if the property is vacated. Gives you much more exposure.
The upside:
The property is now worth @ $ 570,000
Happy Commercial Investing.
Cheers
MJK
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