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$200K? I'd be very, very careful if I were you. That's not a lot in the non-residential game, and the rules are clearly a world away from residential. But, good luck. I plan to get there one day too.
What cash amount did Dazz suggest is needed to start in commercial?
Looks like I'll have to send hubby out to work for a few more years yet.
Thanks for detailing that Dazz.
I was advised MINIMUM $200,000 cash deposit ... for the first small deal and then build up from there.
I'm aiming for an initial CIP of under $400k with 7.5+% net yield
One thing I found while looking is that CIP interest rates on borrowings is around 8+% for newbies - so 7.5% wouldn't be neutral. The banks would also only lend max 70%, but preferably 60% to a newbie.
Also found with the lower cost entries, with exisiting tenants, the landlord was paying the outgoings - so even more negatively geared.
Make sure you look at every angle.
This is the sort of stuff that provides an axe that allows you to chop the chains that tie you down in your job.
Small beginnings, but you need to start somewhere.
Being a devil's advocate for one moment, putting CF aside, I'm interested to know what Dazz's cg has been over the last 12-18mths, presuming he can find a financed buyer.
The point being, yeah the rents might be +, but how about trying to grow a portfolio in the same vein as Dazz, from last year, based on equity?
One thing I found while looking is that CIP interest rates on borrowings is around 8+% for newbies - so 7.5% wouldn't be neutral. The banks would also only lend max 70%, but preferably 60% to a newbie.
Also found with the lower cost entries, with exisiting tenants, the landlord was paying the outgoings - so even more negatively geared.
Make sure you look at every angle.
Good points Lizzie! I've been reading quite a few leases lately with the terms "the lessor must pay all outgoings for the land or building of which the property is part when they fall due"
On a side note; 7.5% in my example was on the gross value (for return from leasing), whereas the rate from the bank (e.g 8.5%) would obviously be on the loan itself. Given the size of the deposit I'm paying, the difference between the yield and loan % is offset and still positive.
My bank has (kindly) offered me up to 75% LVR, as well as a good rate however I'll be keeping my LVR as low as possible to begin with. I'm more interested in the process etc at this stage
When investing in CIP, I would consider my returns based on the total amount or (cash-on cash) returns as some like to call it rather than only borrowings.
To give a true value on returns, you really should factor in all cost including the potential $$$ you would not get on your $100,000 if it was otherwise investing into say a bank acc.
...........
Good luck
B.D