Cip #2
- Thread starter Trogdor
- Start date
Thanks Dazz.
I think I'll take a breather for a few years after this one (seriously this time, I know I said this 12 months ago!!)
This one is vacant possession too - so am looking forward to learning something new and finding / negotiating / installing a new tenant.
Luckily its the immediately neighbouring property from the one we bought last year, so know the asset well, etc... and think we got a reasonable deal - and better than last time.
The nice thing is if we get this one away and in the bag, the pressure really is off for the future as even if it doesnt set the world on fire, the combined rents on both are a reasonable salary you could easily live off down the track when the mortgage gets paid down.
I think I'll take a breather for a few years after this one (seriously this time, I know I said this 12 months ago!!)
This one is vacant possession too - so am looking forward to learning something new and finding / negotiating / installing a new tenant.
Luckily its the immediately neighbouring property from the one we bought last year, so know the asset well, etc... and think we got a reasonable deal - and better than last time.
The nice thing is if we get this one away and in the bag, the pressure really is off for the future as even if it doesnt set the world on fire, the combined rents on both are a reasonable salary you could easily live off down the track when the mortgage gets paid down.
Trog,
Am interested to know what type of structure you use when purchasing your CIP's.
Do you use a discretionary trust setup, with a company as trustee or something completely different.
Just looking to guage the various plus and minuses of each structure i guess.
Feel free to tell me if i'm being too nosey!
Look forward to hearing more details about your new purchase and how it fits in with your plans.
Cheers
Rooster
Good on you Trog.
Handy to have the adjoining asset. Would be keen to hear numbers and your anticipated yield when installing new tenant when you comfortable sharing such details.
From memory your last one was retail, so having this next door may also open up a mixed use type development in the future as a potential value add. Is there any precedent in that strip/precinct for such?
Handy to have the adjoining asset. Would be keen to hear numbers and your anticipated yield when installing new tenant when you comfortable sharing such details.
From memory your last one was retail, so having this next door may also open up a mixed use type development in the future as a potential value add. Is there any precedent in that strip/precinct for such?
Put a sign out front "For Lease ring owner" with your mobile number and watch what happens.
Financing
How are you finding the banks with regards to financing Trogdor? they tight as a clam or more relaxed? usual 70% LVR or other?
Curious to see if financing for commercial is loosening up a little bit.
How are you finding the banks with regards to financing Trogdor? they tight as a clam or more relaxed? usual 70% LVR or other?
Curious to see if financing for commercial is loosening up a little bit.
It completely depends on your personal circumstances.
We're using a unit trust, 50% of the units each, benefits being that if we get negative gearing now (due to depreciation and higher CIP interest rates) and an ever so small shortfall - a minor plus, but more importantly an insurance policy as if we lose a tenant, while we replace them almost half the rent would be "covered" by tax deductions. Other benefit is GST gets handled within the trust, and doesnt get mixed up with non trust asset incomes for GST purposes.
That said, we already have a couple of discretionary trusts running at a modest loss with RIP in one and shares in another (shares positive, RIP negative, together slightly negative) so are recycling debt in there. Once they get positive then future CIPs would likely be on lower LVRs in a discretionary trust and would be paid down before these unit trust owned ones.
Hope this helps. As I said it all depends on your circumstances. If you have no non-deductible debt and a big deposit then I'd go discretionary.
I'll post up numbers once it all gets approved. Its a relatively high $$ / sqm area (prime retail) and smallish properties so the valuations actually get moved a lot by the valuers exact measurement of net lettable area - so I'm hoping my view of area is confirmed (has walls at modest angles) then I'd be around 7% net hopefully - otherwise if I'm off lower and the valuation wont approve the loan and the contract would fall over - which is also fine.
Oddly - its much more economic to keep them as two smaller shops rather than one bigger one as the $/m2 drops as they move to the upper end of size in the district. Though its always good to have the option if somebody every is willing to pay for joining the leases.
I'm going to use the managing agent who manages our property next door.
I work hard enough and long enough hours already !!
Not bad - looking at 75% LVR at 8.65% 1 year fixed rate (would be 9.35% if variable) with Adelaide Bank.
As mentioned the hardest thing is the valuation as they use very conservative $ / m2 rents (I'd say 10 - 20% below "market) as well as being pretty conservative on measuring the net lettable area (and also excluding "gross" areas). The only thing they are aggressive on is the cap rate (oddly very low and well below what Id be buying at and the market generally) but this doesnt offset the above fully. This is experience from the last deal - so hopefully the new one's valuation comes in OK (Im quite sure I can let it for 7% net based on comps and I have 120 day settlement, but what the valuer says for getting the loan is always a different story!!)
Hi Trog,
How are you dealing with Adelaide bank? Is it through a broker or directly with them.
Their website doesn't give a great deal of info on their "Smart suite" products, but rather a rundown for brokers on the benefits and key features of the product.
Thanks again for sharing.
Rooster
Rooster - am using a broker who specialises in commercial. I think I'd be at the very bottom end of his client base, but thats fine.
He recommended Adelaide. The best feature I like about Smartsuite is there are no periodic "reviews" and offer 25 year loans.
I'm not sure how many other commercial lenders do this (maybe somebody else can comment) but I like knowing if it all goes to custard I can pay P&I until paid off - and the bank isnt going to call the loan, making me take a bath.
He recommended Adelaide. The best feature I like about Smartsuite is there are no periodic "reviews" and offer 25 year loans.
I'm not sure how many other commercial lenders do this (maybe somebody else can comment) but I like knowing if it all goes to custard I can pay P&I until paid off - and the bank isnt going to call the loan, making me take a bath.
Cheers for that Trogdor.
I'm just getting my ducks in a row and as much info as possible in order to have a tilt at it by mid year.
No doubt i'll have more questions in the future!
Appreciate the info
Rooster
Hi,
An update, we're now unconditional which is great news.
Are now formally looking for a tenant ahead of settlement.
Will post numbers post settlement and finding a tenant.
Also - to respond to the other thread (I think Kristine) you can get financing for vacant comm at up to 75 per cent LVR if you have strong cash flow. A lot more difficult but can be done.
Thanks.
An update, we're now unconditional which is great news.
Are now formally looking for a tenant ahead of settlement.
Will post numbers post settlement and finding a tenant.
Also - to respond to the other thread (I think Kristine) you can get financing for vacant comm at up to 75 per cent LVR if you have strong cash flow. A lot more difficult but can be done.
Thanks.
Congratulations
Hello,
Well an update to the original post.
Property settled in late May. It had been on the rental market for some time ahead of settlement with no luck. Various parties shown through, and a mixture of reasons why it didnt work out - people needed it immediately and couldn't wait, and some had requirements which were not quite suited by the property.
More viewings post vacancy at settlement, had an offer which fell through, never really got to the bottom of why. Cut the rent around a month ago (from what would have been 7% yield to a 6.1% yield, both net) and finally leased it last week, on a 5 x 5 year (CPI and market review at Year 5). Also gave them 2 months "free rent" to get them in and fitted out. Tenant currently doing fit out.
Overall happy with the result, though the market has definitely slowed for retail.
Some interesting lessons:
- buying a vacant place and putting a tenant in is definitely achievable and not that scary if research shows it should be fillable
- that said can stressful waiting to find a tenant, and you do get a bit of "mickey mouse" behavious in the lower end of the commercial market
- next time probably would have knocked another couple percent of the buying price for the additional time it all took to get the tenant in and the few months free.
With high a CPI environment pretty happy all in, especially with a 5 year period all on net rent. 2 x personal g'tees from both directors as well, who both hold various resi properties.
Have ordered the depreciation schedule, waiting for that, so should be some icing on cake,
No real need to buy anything else too soon. Will spend the next few years paying down debt, and will probably slow down any future purchases (with more of a bais at that time to shares) to when there is a real cashflow surplus down the track. Could easily live of rents and dividends if debt was paid off now (sadly, its not!!), so no need to rush now, just chip away at the debt most expensive to cheapest.
Hope this story helps.
Well an update to the original post.
Property settled in late May. It had been on the rental market for some time ahead of settlement with no luck. Various parties shown through, and a mixture of reasons why it didnt work out - people needed it immediately and couldn't wait, and some had requirements which were not quite suited by the property.
More viewings post vacancy at settlement, had an offer which fell through, never really got to the bottom of why. Cut the rent around a month ago (from what would have been 7% yield to a 6.1% yield, both net) and finally leased it last week, on a 5 x 5 year (CPI and market review at Year 5). Also gave them 2 months "free rent" to get them in and fitted out. Tenant currently doing fit out.
Overall happy with the result, though the market has definitely slowed for retail.
Some interesting lessons:
- buying a vacant place and putting a tenant in is definitely achievable and not that scary if research shows it should be fillable
- that said can stressful waiting to find a tenant, and you do get a bit of "mickey mouse" behavious in the lower end of the commercial market
- next time probably would have knocked another couple percent of the buying price for the additional time it all took to get the tenant in and the few months free.
With high a CPI environment pretty happy all in, especially with a 5 year period all on net rent. 2 x personal g'tees from both directors as well, who both hold various resi properties.
Have ordered the depreciation schedule, waiting for that, so should be some icing on cake,
No real need to buy anything else too soon. Will spend the next few years paying down debt, and will probably slow down any future purchases (with more of a bais at that time to shares) to when there is a real cashflow surplus down the track. Could easily live of rents and dividends if debt was paid off now (sadly, its not!!), so no need to rush now, just chip away at the debt most expensive to cheapest.
Hope this story helps.
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