CF+ Commercial property

[Tikki]

Hi all,

I've come across a commercial property that I'm very interested in purchasing to create a CF+ situation. Here are the facts.

The property is located in Perth, close to the newly proposed (and accepted)Coogee Marina. It is 2 acres with a large vacant shed on the property. I have asked if they'll do a lease option on the place, but as it's a deceased estate the sons just want their money and be done with it. Hence the reason I need investors to help out.

As it's close to the Marina, we are going to use it as an undercover storage facility for boats and caravans, that alone will pay for all P&I and rates for the land. Our reasons for this is that there is a demand for undercover storage in this area; and as land and house blocks get smaller over time, there is less room for people to park these in their driveways. It is also in a very convenient location for ppl to grab their boat on the way to the Marina.

As well as this, there is still 1 1/2 acres left to play with. We are then able to build more sheds to rent out as workshops or more storage or... This is where the +CF starts!!

Ah yes, the price is $800K firm which is market value, but also a very good price where cashflow is concerned.

Questions, Comments, Critisisms please..... Fire away...

 

[MarkB]

Hi Tikki

You've said that the $800k is "market value", but you have not:

a). Said what the terms of the current lease are, including the $ amount and the rights of renewal (so we can't even guage the cash flow atm)

b). Made any mention of the capitalisation rate of other commercial properties that are currently for sale in the area.

Redevelopment prospects aside, commercial property is often (not always) valued according to a capitalisation rate (a cash flow amount). That being the case, comparison between commercial properties can be done as the capitalisation rates can be directly compared.

It is for this reason that some say that an empty commercial property is worth zilch. In terms of capitalisation that certainly is the case (zero cash flow = zero value), but there are other valuation methodologies.

Whether you are using capitalisation or some other methodology, you need to specify how it is that the $800k does, in your opinion, represent market value so that prospective investors can begin to formulate their views.

Similarlarly, some benchmark of the cashflow would allow prospective investors to consider this investment alternative compared to others.


Also, for the initial investment:

- What sort of LVR financing are you proposing to seek?

- How much investor $ do you need?

- What legal structure would you propose for the JV?

- Do you have an exit strategy in mind?

- Risks? (It can't all be smooth sailing, if it was you wouldn't be posting here)



In regards to the other sheds that you say could be built:

- what would it cost to build them?

- what rent / lease would they attract?

- Council hoops that would need to be jumped through?

- Do you have firm plans to construct these?

- If so, how do you propose they be financed?

- Again, risks?


Good luck with it all, I hope it works out.

Mark