CF +ve in Perth/WA....Thing of the past?
- Thread starter <KS>
- Start date
Hi KS,
Impressed by the amount of WA folk here. Fantastic.
To answer your original query, yes indeed, +CF props are definitely to be found in Perth. We had 17 on our research list in Feb this year and we went ahead and purchased the top two on our criteria list.
One of our groups criteria is that the land component must be at least 85% of the final purchase price. This really puts the squeeze on to find +CF props with a 100% lend. If we removed that criteria, then +CF props in Perth are literally everywhere. It helps if the numbers are a tad larger though....1MM doesn't get you into the 'good stuff'.
Both were purchased for near land value. Land component of the first was 88%. The second was 93%. Borrowed 100% of the funds plus all acquisition costs for both.
First one was doing 4.3% gross. No one wanted to touch the place with a barge pole. Advertised on the net but no takers. Spent a total of $ 5,600 doing it up....most of that was truck and bobcat hire to remove all of the garbage. We have kicked out the recalcitrant illiterate tenants and signed up leases with new tenants...now doing 15.5%. Great to get 15.5% gross yield out of structures that are worth only 12% of the prop. 7km from Perth CBD.
Second one was 3 warehouses on two plots of land. Old vendor, who subsequently has become my Mentor, ran down all of the leases on the presumption a developer would be attracted to the large land component, smash down all three and pop up something new. We took it over, spent $ 3,000 doing it up...once again truck and bobcat to remove garbage...and have now signed up fabulous national tenants on 4x2 leases where they pay all outgoings and it now yields about 7.6% nett. This one was not advertised on the net, but had to beat the Mayor of the council to get it. Great to get 7.6% nett yield out of structures that are worth only 7% of the prop. 4km from CBD.
Both of the above were freely available on the market for over 6 months, but apparently alot of people either drove by and figured too much work, or couldn't see the potential. When most people refer to +CF, I believe they are talking about having something handed to them on a platter all dressed up with a pretty pink bow. I agree, these do not exist in the metro area.
My next purchase in Feb '06 will be the property next door to the second one that my Mentor operates his business out of. That'll make a big ~ 3 acres on a corner allotment, with 120m of frontage to one street and 98m to the other. +CF Landbanking situation....IMO doesn't get much better. It'll be the same deal, 100% loan plus all costs. That'll be signed up for a 5x3 on a nett yield around 7.8 to 8.1% nett. More modern buildings on this allotment - hence the higher yield, and land component not quite 85% of asking price, but we are prepared to bend our rule a tad due to the neighbouring position of the block. Sum is greater than the parts so to speak.
So....in summary, 100% loan plus all costs and +CF in Perth metro area....yes it's "do-able" in 2005 to use an offensive American term.
Happy hunting.
Cheers,
Dazzling
Impressed by the amount of WA folk here. Fantastic.
To answer your original query, yes indeed, +CF props are definitely to be found in Perth. We had 17 on our research list in Feb this year and we went ahead and purchased the top two on our criteria list.
One of our groups criteria is that the land component must be at least 85% of the final purchase price. This really puts the squeeze on to find +CF props with a 100% lend. If we removed that criteria, then +CF props in Perth are literally everywhere. It helps if the numbers are a tad larger though....1MM doesn't get you into the 'good stuff'.
Both were purchased for near land value. Land component of the first was 88%. The second was 93%. Borrowed 100% of the funds plus all acquisition costs for both.
First one was doing 4.3% gross. No one wanted to touch the place with a barge pole. Advertised on the net but no takers. Spent a total of $ 5,600 doing it up....most of that was truck and bobcat hire to remove all of the garbage. We have kicked out the recalcitrant illiterate tenants and signed up leases with new tenants...now doing 15.5%. Great to get 15.5% gross yield out of structures that are worth only 12% of the prop. 7km from Perth CBD.
Second one was 3 warehouses on two plots of land. Old vendor, who subsequently has become my Mentor, ran down all of the leases on the presumption a developer would be attracted to the large land component, smash down all three and pop up something new. We took it over, spent $ 3,000 doing it up...once again truck and bobcat to remove garbage...and have now signed up fabulous national tenants on 4x2 leases where they pay all outgoings and it now yields about 7.6% nett. This one was not advertised on the net, but had to beat the Mayor of the council to get it. Great to get 7.6% nett yield out of structures that are worth only 7% of the prop. 4km from CBD.
Both of the above were freely available on the market for over 6 months, but apparently alot of people either drove by and figured too much work, or couldn't see the potential. When most people refer to +CF, I believe they are talking about having something handed to them on a platter all dressed up with a pretty pink bow. I agree, these do not exist in the metro area.
My next purchase in Feb '06 will be the property next door to the second one that my Mentor operates his business out of. That'll make a big ~ 3 acres on a corner allotment, with 120m of frontage to one street and 98m to the other. +CF Landbanking situation....IMO doesn't get much better. It'll be the same deal, 100% loan plus all costs. That'll be signed up for a 5x3 on a nett yield around 7.8 to 8.1% nett. More modern buildings on this allotment - hence the higher yield, and land component not quite 85% of asking price, but we are prepared to bend our rule a tad due to the neighbouring position of the block. Sum is greater than the parts so to speak.
So....in summary, 100% loan plus all costs and +CF in Perth metro area....yes it's "do-able" in 2005 to use an offensive American term.
Happy hunting.
Cheers,
Dazzling
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Great stuff Dazzling. I think many of us are a little bewildered by commercial properties... they seem to sell in a very low hype and different sort of market place. +CF on near land value - you are right it doesn't get any better. when you say 100% lend, is that a theoretical calculation or are you somehow lending 100%?
I've always been under the impresion that CG on Commercial is less as well??
Not sure why, just something i heard once, as well as the fact that the value is in the lease and that you need to put more $ into the deal, also that in bad times you may find it hard to replace a tenant??
In short with commercial or industrial the bad times s*ck but the good time rock...
Please note- I do not have ANY experience in Commercial or Industrial and I have a friend that swears by it and thinks i'm mad with residential..
REDWING
Not sure why, just something i heard once, as well as the fact that the value is in the lease and that you need to put more $ into the deal, also that in bad times you may find it hard to replace a tenant??
In short with commercial or industrial the bad times s*ck but the good time rock...
Please note- I do not have ANY experience in Commercial or Industrial and I have a friend that swears by it and thinks i'm mad with residential..
REDWING
redwing said:
Hiya Redwing,
Good to catch up with you.
I was also under that impression that CG on CIP's and IIP's were less, I remember reading it in a book by a certain Qld lady. I also ran with that impression until I started buying non-ressy stuff. Now I know it's totally false. Probably if you like ressy stuff and want to stick to it, keep believing it...it gives you a nice warm feeling.
The prop we bought off our mentor has done 12.91% p.a. compounded since 1964 when he bought it. He's reasonably happy with the growth in the land, especially with his tenants paying all holding costs over that time.
Ask people who bought CBD office land in the 60's if the land underneath their offices has appreciated....umm yes !!!
You've hit the nail on the head with the rest of your thread. If you disect your points, it reflects our current group's philosophy.
Buy props with a very high land content, preferably with dodgy leases or no leases at all. That way you pay little for the buildings and nothing for the leases. Kick out the dregs, and sign up fantastic tenants on big fat juicy leases. High risk, but really high return. It's certainly not for people who are comfy with buying a little 3x1 house and then handing it over to a PM and waiting for the growth.
In short - buy a prop that is having a real bad time and work your little sox off to get into the good times.
Last step of course when the lease is all signed up, and everything is just tickety boo, flog it off to some gullible Eastern States investor who is happy with 5% nett return....beautiful.
Cheers,
Dazzling "No point having a cake if you can't eat it."
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Do you hold some?
Thanks Dazzling for the further details of the strategy. Sounds great.
I guess from my buy & hold mindset, I think that for properties with a history of 13% compounding growth since 1964 there is no way I'd be selling them! So, I guess you keep some? Then again, if you can grow your equity really quickly by doing another deal I can `half` understand why you'd sell.
I'm so set on the `never sell` mantra and love of the wonders of compounding on an ever-growing asset base....
There are many different ways to property wealth.
Rock on,
Thanks Dazzling for the further details of the strategy. Sounds great.
I guess from my buy & hold mindset, I think that for properties with a history of 13% compounding growth since 1964 there is no way I'd be selling them! So, I guess you keep some? Then again, if you can grow your equity really quickly by doing another deal I can `half` understand why you'd sell.
I'm so set on the `never sell` mantra and love of the wonders of compounding on an ever-growing asset base....
There are many different ways to property wealth.
Rock on,
Sorry to KS for imposing on your thread. It wasn't my intention.
Pete - that was a bit cheeky of me to write that last bit....I put it out there to see if I got a nibble from any of the good folk over the other side of the paddock. No takers...I'm impressed.
We are very much like you with the buy and hold strategy, we haven't sold anything since '97. We don't believe churning stuff over is the best way to get wealthy, and hence hold everything for the long term. Besides, after you've done all the hard work in cleaning the place up and securing nice big fat national tenants paying a +CF rent, why on Earth hand that to someone else to just swan in and enjoy the fruits of your labour ?? Growth in the land is where it's always at, the lease and tenants just allow you to hold it for free.
In our opinion it's the quickest way to climb the wealth ladder, but imposes on lifestyle to gather sufficient cashflow to carry on, although these IIP's we are investing in are turning a slight profit, which helps the woefully negative ressy stuff we continue to hold....hmmm....offloading some of the really negative stuff with whinging ressy tenants has certainly crossed our minds.
If we hold our latest place for the same time frame as the old chap we purchased it off and it does the same 12.91% compounded....the numbers get a tad scary....starts to look like a military budget.
The tenants intend spending 40 or 50K improving our warehouses over the next 2 months before they shift in their operation....don't get that with ressy tenants....and we're not completely hamstrung by that outrageously skewed ridiculous document known as the Residential Tenancies Act.
Two months ago, as we were in the process of cleaning it up and kicking out the daggy tenants, we received a call from the Govt asking if we would consider an offer, as it was the only corner site large enough to place their intended power sub-station. I told them to come and have a chat in about 10 years time...and offer us an outrageous amount - like triple market value. My only concern now is this compulsory acquisition nonsense that they can invoke.
Rixter - sorry, you've asked the question twice, but I don't feel comfortable divulging location details....our hunting grounds are fertile places....less competition the better.
Cheers,
Dazzling "No point having a cake if you can't eat it"
Pete - that was a bit cheeky of me to write that last bit....I put it out there to see if I got a nibble from any of the good folk over the other side of the paddock. No takers...I'm impressed.
We are very much like you with the buy and hold strategy, we haven't sold anything since '97. We don't believe churning stuff over is the best way to get wealthy, and hence hold everything for the long term. Besides, after you've done all the hard work in cleaning the place up and securing nice big fat national tenants paying a +CF rent, why on Earth hand that to someone else to just swan in and enjoy the fruits of your labour ?? Growth in the land is where it's always at, the lease and tenants just allow you to hold it for free.
In our opinion it's the quickest way to climb the wealth ladder, but imposes on lifestyle to gather sufficient cashflow to carry on, although these IIP's we are investing in are turning a slight profit, which helps the woefully negative ressy stuff we continue to hold....hmmm....offloading some of the really negative stuff with whinging ressy tenants has certainly crossed our minds.
If we hold our latest place for the same time frame as the old chap we purchased it off and it does the same 12.91% compounded....the numbers get a tad scary....starts to look like a military budget.
The tenants intend spending 40 or 50K improving our warehouses over the next 2 months before they shift in their operation....don't get that with ressy tenants....and we're not completely hamstrung by that outrageously skewed ridiculous document known as the Residential Tenancies Act.
Two months ago, as we were in the process of cleaning it up and kicking out the daggy tenants, we received a call from the Govt asking if we would consider an offer, as it was the only corner site large enough to place their intended power sub-station. I told them to come and have a chat in about 10 years time...and offer us an outrageous amount - like triple market value. My only concern now is this compulsory acquisition nonsense that they can invoke.
Rixter - sorry, you've asked the question twice, but I don't feel comfortable divulging location details....our hunting grounds are fertile places....less competition the better.
Cheers,
Dazzling "No point having a cake if you can't eat it"
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Hi Dazzling
I've been impressed with your posting here and .... that other place
I think the reason why most people avoid commercial is that every one is familiar with residential property , but not many people have hands on experience with commercial , so they're nervous about what they're not familiar with.
Prior to buying Commercial did you work in any way with commercial property ?
If not , once you started how long did it take for you to feel that you were getting on top of the info you needed to find out about ?
Curious ( if you're happy to divulge ) but how did you go about finding the good tenants. Did you do that through a commercial agent or did you track them down yourself ?
See Change
I've been impressed with your posting here and .... that other place
I think the reason why most people avoid commercial is that every one is familiar with residential property , but not many people have hands on experience with commercial , so they're nervous about what they're not familiar with.
Prior to buying Commercial did you work in any way with commercial property ?
If not , once you started how long did it take for you to feel that you were getting on top of the info you needed to find out about ?
Curious ( if you're happy to divulge ) but how did you go about finding the good tenants. Did you do that through a commercial agent or did you track them down yourself ?
See Change
NOT to discourage those buying commercials.
There are plenty cash flow positive or nutrial commericals there in WA. Those have built-in long term tenants such as medical centre, manufactuers so on. But just go to check the capital gains on them compare the residential. I know few commercials in Bentley in the last 6 years only grew by $30-40k when you invested $200-300k. If you look at residential, if you invest this amount 6 years ago, you could well get $200-400k return.
Do you know how the commercial propety price was set up? Rental / IRR. It is decided by the rental -- NOT by the land or anything else. If you can not rent it, you may receive little of your capital back.
I know one property was sold for $300k. The owner renovated it and leased to the medical centre on a 5+5 term, and have a rental $140k a year. Now he put the property on the market for $1400 000 and gave you a positive return of 11%. Would you dare to take on board? My fellow positives?
Different opinion for your wise consideration.
There are plenty cash flow positive or nutrial commericals there in WA. Those have built-in long term tenants such as medical centre, manufactuers so on. But just go to check the capital gains on them compare the residential. I know few commercials in Bentley in the last 6 years only grew by $30-40k when you invested $200-300k. If you look at residential, if you invest this amount 6 years ago, you could well get $200-400k return.
Do you know how the commercial propety price was set up? Rental / IRR. It is decided by the rental -- NOT by the land or anything else. If you can not rent it, you may receive little of your capital back.
I know one property was sold for $300k. The owner renovated it and leased to the medical centre on a 5+5 term, and have a rental $140k a year. Now he put the property on the market for $1400 000 and gave you a positive return of 11%. Would you dare to take on board? My fellow positives?
Different opinion for your wise consideration.
see_change said:
Absolutely - agree 100%....one has to step out of one's comfort zone.
see_change said:
Nope jumped in boots and all with a really safe "no land" industrial strata place with an outstanding 10 yr lease already negotiated and signed up....we paid for that big time....but worth it in terms of educating ourselves in all of the details.
see_change said:
Never use an agent....we slapped a $ 200 sign out the front and put little ads in the paper. We are a "poor boy" op, but managed to hook a national tenant and negotiated a cracking good lease. The knowledge I've picked up negotiating the final details is worth buku to me...would never pay to hand that experience and knowledge to someone else. That knowledge will pay handsome dividends over the next 70 or so years that I have left to invest.
I'll paste in some posts from the dark side re: details if you'd like ??
Dazzling
To answer the initial question, this one might be better than most.
http://www.realestate.com.au/cgi-bin/rsearch?id=102578536&a=qfp&cu=&t=res&q=Go
$45 000, 2 bedrooms, in a town of 3000 and about 300km from Perth.
Rent: should be at least $100pw, maybe $110.
All the usual issues like high proportional holding costs, limited capital growth, availabiliy of tradesmen etc apply, but a town of 3000 should be far superior to one of 500.
Painting and opening up the front would make a big difference cosmetically if you wanted to sell.
Peter
http://www.realestate.com.au/cgi-bin/rsearch?id=102578536&a=qfp&cu=&t=res&q=Go
$45 000, 2 bedrooms, in a town of 3000 and about 300km from Perth.
Rent: should be at least $100pw, maybe $110.
All the usual issues like high proportional holding costs, limited capital growth, availabiliy of tradesmen etc apply, but a town of 3000 should be far superior to one of 500.
Painting and opening up the front would make a big difference cosmetically if you wanted to sell.
Peter
