Michael Pascoe shares his thoughts on banks vs. REITs
http://media.theage.com.au/?rid=46597&sy=age&source=business.theage.com.au/
http://media.theage.com.au/?rid=46597&sy=age&source=business.theage.com.au/
Commercial Property for income
- Thread starter crc_error
- Start date
this is why buying commercial property is dangerous.. not that the underlying property is bad, but its the lending conditions which wreck the whole market.
at least banks dont call in loans for falling residential properties.
Ahem;
As someone who has been saying residential property is going to fall 40-50% and commercial up to 70% that video with Michael Pascoe says to me; watch out that black swan event may be about to undermine your cherished delusion
Just another reason not to get sucked into fixed tern reviewable products
1 and 3 or 5 year review terms on comm lending in the current market will make for interestung times. The truth is that most comm borrowers dont know that there are lower risk choices with set and forget products.
ta
rolf
1 and 3 or 5 year review terms on comm lending in the current market will make for interestung times. The truth is that most comm borrowers dont know that there are lower risk choices with set and forget products.
ta
rolf
hi all
couple of myths
banks or lenders don't like vendor finance
they do as they are becoming the vendor.
now they want to get out of a deal more then a nomal vendor as they want this bad debt off their desks so they will vendor finance.
and you don't have to explain it to them.
so you have a new bank as your first mortgagee and the old bank as your vendor finance.
now isnt that funny
when both banks don't like vendor finance
HiEquity
these deals are not uncommon and I am not the only person in this pool nor for that matter do I get anywhere the number of deals I wish
one group picked up a comm building in melb at 35% of its 2 year ago purchase price and thats not a group I am in at all.
and
nonrecourse
I have been to a meeting this weekend and the one thing that I took away from that meeting is the idea that
you can do it
you just have to have a dream
everything will line up and you will reach that dream.
commercial could correct by 70% and resi by 55% if thats what you think but would that stop me investing in both.
the simple answer is
no
why you might ask
is this guy a fool.
no because I work on numbers and volume
lets look at some numbers
and these are examples and for learning only
not to be used unless you use the 2 page disclaimer
if I bought a comm at 1mil value and paid 550k but had an income of 110k and a deposit of 55k (from the tennant) and my current cost of funds were 33k( and above is normal for the deals I am involved in)
so im cash positive by 77k
and my lease is 5% annual increase and I lock it for say 3 years.
and I got vendor finance for the first 6 months of 40%.
so my first 6 months is 330k with 220k vendor at zip interest
the first 6 months is 9.9k and the second is 16.5k so total is 26.4k and then going to 33k( if I wanted to skimp)
now if I didn't amortise the 5% increase the value is going up by 5.5k per year or 92k per year
so in 3years my property not next door or the one round the corner goes up by 274k
now lets look at your drop at 1mil
a 70% drop take the value to 300k plus my 274k because my property goes up by that amount with or with out other properties around me
so at the 3 rd year
my lease income is 127.33k per year and my value on your numbers is 572k
if thats right I'm on a 22.26% net income on value
now do you think I would have problems selling a 22.26% net return property.
now you might say well the market might have all property giving a 22.5% net return margin
then I have a bigger and better question
why would I sell
if I am making 22.26% net of all costs and my costs of funds is 6%
they would need to get interest rates to (and thou mr hawk and keating tried to get there they didn't get to 20% interest rates)over 22.26%
now you might say thats fine what if the tennant leaves
at 33k the property could be left vacant for 1.66 years looking for a tennant
and the old tennant leases says that any break they pay for the time to find a new tennant so there are legals in there and won't try to example that area.
for me in this market its not the buyers that have the problem as they can and do there due diligences
its the current holders
because you need strong tennants and strong leases and then buy at the right price
if you hold comm then you should already have locked and made sure that you reupdate your leases
70% or 90% drop in value is not a problem if you don't have to sell.
and a 70% drop to me
is a 70% of val buy
and not seeing those
but if someone can send me
70% of val purchase
send me that val thats alot more interesting.
I like people that continue to look and try to work out an investment.
but I like doers a bit better.
I like the
you can do it
you can decide to do some thing and do it
this market not just real estate is a time to do things
why very simple
we are in a time when there is so much opportunity where you can learn business and learn even to buy commercial when the numbers are in your favour
this does not happen that much and the window will not be open for long maybe 12 to 18 months at most I think
with funds on the ropes not because the assett has anything wrong at all
some leases are 25 and 30 years
but the funds are at the covernent requirements
banks want to clear debt
mr rudd quarantee everything including the paperclips so banks clear debt
and people are looking for ways to make income and financial security.
and for me thats the best time for business
I hope people read this a couple of times and add a few ... ,,, AAAA along the way
and understand that comm is not the same as resi and there are different reasons for buying it the way to purchase is the same nearly but the growth the value and why you buy particular types is very different.
and I won't say I wish you luck
make your luck
couple of myths
banks or lenders don't like vendor finance
they do as they are becoming the vendor.
now they want to get out of a deal more then a nomal vendor as they want this bad debt off their desks so they will vendor finance.
and you don't have to explain it to them.
so you have a new bank as your first mortgagee and the old bank as your vendor finance.
now isnt that funny
when both banks don't like vendor finance
HiEquity
these deals are not uncommon and I am not the only person in this pool nor for that matter do I get anywhere the number of deals I wish
one group picked up a comm building in melb at 35% of its 2 year ago purchase price and thats not a group I am in at all.
and
nonrecourse
I have been to a meeting this weekend and the one thing that I took away from that meeting is the idea that
you can do it
you just have to have a dream
everything will line up and you will reach that dream.
commercial could correct by 70% and resi by 55% if thats what you think but would that stop me investing in both.
the simple answer is
no
why you might ask
is this guy a fool.
no because I work on numbers and volume
lets look at some numbers
and these are examples and for learning only
not to be used unless you use the 2 page disclaimer
if I bought a comm at 1mil value and paid 550k but had an income of 110k and a deposit of 55k (from the tennant) and my current cost of funds were 33k( and above is normal for the deals I am involved in)
so im cash positive by 77k
and my lease is 5% annual increase and I lock it for say 3 years.
and I got vendor finance for the first 6 months of 40%.
so my first 6 months is 330k with 220k vendor at zip interest
the first 6 months is 9.9k and the second is 16.5k so total is 26.4k and then going to 33k( if I wanted to skimp)
now if I didn't amortise the 5% increase the value is going up by 5.5k per year or 92k per year
so in 3years my property not next door or the one round the corner goes up by 274k
now lets look at your drop at 1mil
a 70% drop take the value to 300k plus my 274k because my property goes up by that amount with or with out other properties around me
so at the 3 rd year
my lease income is 127.33k per year and my value on your numbers is 572k
if thats right I'm on a 22.26% net income on value
now do you think I would have problems selling a 22.26% net return property.
now you might say well the market might have all property giving a 22.5% net return margin
then I have a bigger and better question
why would I sell
if I am making 22.26% net of all costs and my costs of funds is 6%
they would need to get interest rates to (and thou mr hawk and keating tried to get there they didn't get to 20% interest rates)over 22.26%
now you might say thats fine what if the tennant leaves
at 33k the property could be left vacant for 1.66 years looking for a tennant
and the old tennant leases says that any break they pay for the time to find a new tennant so there are legals in there and won't try to example that area.
for me in this market its not the buyers that have the problem as they can and do there due diligences
its the current holders
because you need strong tennants and strong leases and then buy at the right price
if you hold comm then you should already have locked and made sure that you reupdate your leases
70% or 90% drop in value is not a problem if you don't have to sell.
and a 70% drop to me
is a 70% of val buy
and not seeing those
but if someone can send me
70% of val purchase
send me that val thats alot more interesting.
I like people that continue to look and try to work out an investment.
but I like doers a bit better.
I like the
you can do it
you can decide to do some thing and do it
this market not just real estate is a time to do things
why very simple
we are in a time when there is so much opportunity where you can learn business and learn even to buy commercial when the numbers are in your favour
this does not happen that much and the window will not be open for long maybe 12 to 18 months at most I think
with funds on the ropes not because the assett has anything wrong at all
some leases are 25 and 30 years
but the funds are at the covernent requirements
banks want to clear debt
mr rudd quarantee everything including the paperclips so banks clear debt
and people are looking for ways to make income and financial security.
and for me thats the best time for business
I hope people read this a couple of times and add a few ... ,,, AAAA along the way
and understand that comm is not the same as resi and there are different reasons for buying it the way to purchase is the same nearly but the growth the value and why you buy particular types is very different.
and I won't say I wish you luck
make your luck