Commercial Webinar wednesday night 6th feb

[James m Dawson]

Really enjoyed the webinar. But I am yet to find properties giving a net return of 10% as you have presented. Most are 7% net, making them cash flow neutral.

Hi , They are around , the last two purchases that I have helped with show over 10 net and in fact I just sold a property of mine showing 10.25 % net to the new owner. Of course lots of stuff on the market at the asking is at a much lower net return , where sellers are just trying for the best. keep searching you will find one
james

 

[Rooster]

Any chance of answering other people's questions James?

Or do you only prefer to talk about the details that paint your story in a positive light?

 

[James m Dawson]

Thanks James,

That was a very informative and helpful presentation. I've often read that its good to buy above the 1mil mark as tenant quality will be better and length of lease longer. I was interested to see you give examples in much lower price ranges, making com property accessible for those starting out.

Regards Jason

HI jason , it really does depend on the tenant for any price range and of course you must take into account how much risk you personally like to deal with.
james

 

[James m Dawson]

Any chance of answering other people's questions James?

Or do you only prefer to talk about the details that paint your story in a positive light?

ouch !
sorry have been away from the office for a bit, I'm answering all now. I do think I take a fair view of investment- there always is risk and this has to be balanced up with the returns etc. Ie if you are getting a higher return , you should consider putting something aside for a buffer in case of a vacancy. I'm pretty sure I pointed that out in the webinar.
thanks
james

 

[James m Dawson]

This was a very interesting webinar.

Some really good coverage of the basics, and very clearly presented.

The case study, however, had me intrigued (the Gold Coast example, leased to the REA and gift shop).

From memory the rent was 70ish K p.a. with outgoings of 30ish K p.a.

Presumably these outgoings had some massive body corporate due to the high rise nature of the building (above the ground floor retail) but still can't see how it was 30ish K p.a. Did I misread this?

If is it in fact true, I wouldn't touch it for 11% net yield. Last thing you want is a protracted vacancy where you have to cough up this type of money in outgoings yourself (which you'd have to do in that instance) plus debt service. Especially for a newbie young guy starting out as per the example given. I personally would be much happier on much much lower net yield with the usual 3k - 4k p.a. outgoings for other low value CIPs.

The other thing the webinar didn't touch on was finance - James do you take bank bill products, short term loans, or lengthy term loans?

HI , yes good point , the high outgoings are due to size of the building. The guy who bought that one took a lot of time to weigh it all up and felt he was ok with taking on that risk. He also considered other uses for the shops should one or both become vacant ie cafe etc. You do really need to consider how much risk you take on when looking at higher returns etc. Of course if you have other sources of income- as this guy does that helps.

Currently I use mostly bank bills that are pretty adaptable in the ways you can set them up. I do have some fixed loans which i wish i didnt have as fixed when rates were higher- but over all it works out. I think i will put together a webinar on how i see financing in the future. There are lots of finance guys on the forum so it would be great to get their input.

thanks for the comments
james

 

[James m Dawson]

I probably answered this in my other post- it is the right thing to do is to always look at the worst case to see if you can handle that ie a vacancy - your numbers below are common to that price range and a lot easyier to handle should you have a vacancy. I do like the saying "little fish are sweet"its probably better to have lots of these investments than one huge one.
thanks
james

Seems from the example provided the rub is the massive outgoings which you'd have to shoulder in a vacancy.

Just went and re-read James post to the example. I.e.

78K gross
39k outgoings
39 net rent
11% yield (assuming 355k purchase all in).

In a vacancy (say a downside 6 months) you'd be paying 39k + interest out of your pocket.

Alternatively, I'd always chose a 7% net property with characteristics more like:

Gross rent
28k gross
3k Outgoings
25k net
7% yield on same 355k

Much less exposure in a vacancy to blowing yourself up. Especially as your portfolio grows.

Also would prefer this even further if it was 25k net rent (i.e. tenant pays outgoings themselves, not just a gross rent figure) rather than 28k gross rent, but thats going off topic.

On our two CIPs the outgoings are well under 10% of net rent, and leases expressed as rent + outgoings + GST (rather than gross rent).

 

[James m Dawson]

HI Syd , thanks for comments the outgoings for the deal i spoke about (gold coast ) in the webinar was a total of 33k , 27k of this is the body corp fees the balance is rates, the body corp fees are high.
Yes just sold the mackay property at auction , I have had a few pms about this asking why sell etc. I'm trying to get more property in my smsf and decided that I would finally look for small shopping centre- one that could be strata titled down the track. One question I got was did i think there is anything wrong with mackay- I still have other property there so I do have longer term faith in the area.
Still finding my way with the smsf stuff , its an area that i will have to get more advice on. Im rolling up to 56 this year so have been doing a lot of thinking about how it all works from here on in

Hi James,


I enjoyed your webinar.

I was also surprised by the high outgoings for the Coolangatta property. Can you please give a breakdown of these outgoings? I agree with Trogdor's comments regarding the risk when the property is vacant.

I also noticed you have recently sold the Mackay property which you featured during the webinar. If you do future webinars I would be interested on hearing about the selling side of commercial properties including the reasons why people sell and the nuances of dealing with commercial property agents.

SYD

 

[James m Dawson]

Any chance of answering other people's questions James?

Or do you only prefer to talk about the details that paint your story in a positive light?

just realised that I had missed a lot of posts, hopefully answered all now
james

 

[James m Dawson]

, I will put together some of my selling experiences in a future webinar, thanks for the feed back
james

Hi James,

I enjoyed your webinar.

I was also surprised by the high outgoings for the Coolangatta property. Can you please give a breakdown of these outgoings? I agree with Trogdor's comments regarding the risk when the property is vacant.

I also noticed you have recently sold the Mackay property which you featured during the webinar. If you do future webinars I would be interested on hearing about the selling side of commercial properties including the reasons why people sell and the nuances of dealing with commercial property agents.

SYD

 

[Trogdor]

HI , yes good point , the high outgoings are due to size of the building. The guy who bought that one took a lot of time to weigh it all up and felt he was ok with taking on that risk. He also considered other uses for the shops should one or both become vacant ie cafe etc. You do really need to consider how much risk you take on when looking at higher returns etc. Of course if you have other sources of income- as this guy does that helps.
james

Thanks James. Interesting. Each to their own I guess - but I'm sticking to commercial with lower outgoings. Hopefully its working out for your client. Has this guy bought any more since?

Currently I use mostly bank bills that are pretty adaptable in the ways you can set them up. I do have some fixed loans which i wish i didnt have as fixed when rates were higher- but over all it works out. I think i will put together a webinar on how i see financing in the future. There are lots of finance guys on the forum so it would be great to get their input.

thanks for the comments
james

Thanks, that's very useful info. I'm waiting until my fixed rate loans expire early next year and year after and can't wait to get into some cheaper financing!! Are you on the two year bank bill products?

 

[Trogdor]

Yes just sold the mackay property at auction , I have had a few pms about this asking why sell etc.

I saw the property on here - the one with rent of $131,200+GST.

http://www.investmentportfolioauction.com.au/

How much did it end up selling for (the Feb auctions are not yet on the "Recent Auction Sales" page)?

 

[James m Dawson]

HI Trogdor, he settled that one in the last month or so - he will probably wait 6 months or so before starting the process again
james

 

[James m Dawson]

it sold for 1310000 - about to settle in the next few days

 

[Gordi]

Hi James,
We are interested in commercial properties but dont just need some advice. Are you going to be running another webinar night or do you have another site where you suggest we can access information on commercial buying?
Thanks
Gordi