Don't have to lift a finger

Had a few champers and wine of late - celebrating the latest acquisition...so pardon the waffle if it reads a bit funny :cool:


Well it seems there is 2 or 3 people around Australia who are interested in what goes on when you actually, really ruly-truly, rinky dinky buy a commercial property.....as opposed to working in the industry for 50 years or studying 'it' in academia, or standing on the sidelines and being an expert commentator without actually putting your hand in your pocket....

I thought I'd do what most very quiet prudent investors do, that is, quickly and conveniently skim over most of the nitty gritty details where you actually learn stuff, and just disclose the boring bits that everyone already knows....:rolleyes:

We hunted around the State for something suitable, with the search commencing in June last year....for us she's been a long fruitless haul compared to how we normally acquire stuff. There have been 5 serious cracks at absolutely fantabulous sites, both here in Perth and Adelaide. We have been consistently passed over and ignored during the last 10 or so months, for two reasons mainly, number 1 was that were always the smallest investor vying for the property, and the Vendors typically had never heard of us and thought we could not complete the deal. The second reason was that we always had a "get out" clause, which is often espoused by the stand-up real estate gurus as being essential. Little tricky hide behind clauses on the contract somewhere, a string if you will, tied to your lump of cash on the Vendor's table, such that if the going got tough you could always yank on the string and exit stage left, leaving the Vendor high and dry.

In the real world of course, all of those "tricks" are quickly seen through by financially savvy Vendors who simply chuck your Offer straight in the bin. No problem if you don't care about picking the asset up and you are dropping 25 Offers all over the place, move on, plenty of fish in the sea apparently....not so good if you've spent the past 3 months and $ 6,000 doing your thorough due diligence on each property. We found there was only ever 2 or 3 crackingly good properties (Land size and position / infrastructure / tenant quality and Lease wording ) worth investigating. This old maxim of "the best deal in a decade comes every other week" we found definitely not to be true. Plenty of dross out there, some that time cannot fix.

Anyway, we joined the rest of the mob, got serious, got rid of all of our Mickey Mouse clauses, and sheepishly dove head first into our first cash unconditional "expression of interest". Felt pretty good, until the Vendor's agent said that our EOI was legally non-binding, and if we really wanted to grab the prop and be serious, it would be better to write it up formally in a contract format. As one of my friends put it - now's the time for your " **** on the block". He has a certain way with words.

I received the Contract of Sale - in a huge big Manila envelope - and commenced reading the Annexures to the main 3 pages of the Contract. The Vendor's solicitors, a team of 3 high powered "senior counsels" had done a real stitch up job with the wording. Anyone that had of just signed it would of ended up in a complete nine line bind - pinned to the wall in a written straight jacket. I knew it was a stitch up job, 'cos the Agent kept on using the word 'standard' in just about every sentence he uttered to justify the outrageousness of the clauses. To the point, where the 2002 General Conditions for the Sale of Land wording had been doctored with no less than 16 exclusions...."The Buyer expressly agrees to delete the following from the contract"....followed by 16 terms specified in the General Conditions whereby the term started with "The Seller must"....or...."The Seller shall"....or...."The Seller warrants". It was laughable.

It took about 2 full hours from 3 to 5 in the morning....when the kids were still in bed and I could concentrate.....to wade through the documents and slash through the ridiculous clauses imposed by the team of Solicitors. In the end it looked more like a bloodbath than a contract, with me tearing the heart and soul out of their wording, to the point where the Contract actually favoured me somewhat.

The Agent confidently swaggered into my office later the same morning to pick up the executed Offer, thinking that he had a real live sucker on the end of his line. It was gratifying to see the expression on his face fall slightly when he started reading the hatchet job I had done on the Solicitor's 'proposed standard' wording. He had to muster every slimy trick in his book to gain the upper hand, but it was a lost battle. I knew I was the only unconditional cash bidder - and he knew I knew.

The Offer was reluctantly submitted, and the Vendor's solicitors were a little taken aback by what I had agreed to. They fluffed up their pristine plumage and tried to hustle me with as much legal waffle as they could muster. I took all three on, and their Master - the Vendor, via a conference call to Sydney. In the end the wigged clowns backed down on their Master's insistence. That's always the trick....ignore the legal knobs and concentrate on the person actually calling the shots - "My esteemed client couldn't possibly".....yeah right !!

So, the Vendor and his merry gaggle of syndicated 17 investors eventually signed the contract and the Agent finally emailed me through the signed and fully executed Contract. Job done - it's ours.

Took the wife into the centre of the CBD this morning and showed her for the first time what we'd bought. She liked the position and liked the outlook.

Tenant is bigger than Ben Hur, and strapped to the wall with a water tight Lease for the next 10 years. They have to do....and pay for....absolutely everything, our obligation as Owner is about as onerous as what a residential tenant has to do - bugger all except breathe and exist.

Everything is managed professionally for us, which the tenant of course pays for as well, so we really need to just sit back and concentrate on the next deal.

Given that the boom has only just got going in the sector we invest in - anything other than residential for about 2 years - and should have another 2 or 3 years at least to go, we are still ramping up, I have high confidence that the rental we can extract out of this place will be through the roof in years to come.

We shall need to pay some attention to this property in early 2017. Other than that, it's set and forget.

Gross starting yield (equivalent to what is quoted for houses) is 9.1%.

Nett yield after all costs (CR / WR / LT / Ins / PM fees / maint) is 6.9%.

Not bad we thought for a do nothing, pay nothing investment right smack bang in the middle of the Perth CBD with a tip top blue chip tenant. Bit like owning a chunk of a trust fund without the lack of control and skimmed off management fees.

The deal is about 55 times as big as our first PPoR. Our philosophy is we'd rather go hard and negotiate on one good deal, rather than gather a never ending clutch of houses with the ensuing headaches and troglodites that brings.

With our next one, we might balance it out with another large tract of stinky industrial land....or, who knows....we might get used to this "do nothing" type of investing. Certainly beats working for a living. :D

Adios.
 
CONGRATULATIONS DAZZLING (& Mrs DAZZLING)


I would've been stuck at b/c/d and e ;)

After your last deal fell through, I'm glad to see with this one you've come up trumps again; as always, an interesting read as well.


a) Would be physically sick to even step foot on....they are usually great.
b) Cannot afford. This one is difficult, there's always someone financially bigger than yourself.
c) Too scared to even look at.
d) Wouldn't know what they are even looking at.
e) Don't know are for sale.....these are good also.
 
Dazz...I'm so pleased for you. Can't wait to see pics of the building and of you and Mrs Dazz toasting a glass of the finest on settlement day. Good on yer for not taking any legal b/s. This is fantastic news!
 
Congrats on the purchase...and what a great learning experience. Thanks for sharing the details.

I used to lend money to corporations for these big deals and thought how cool would it be to actually be the one borrowing instead. Your stories are such an inspiration.

You are really in the big boys league now but at least still applying all the basic principles in property investing. It's easier to make mistakes in commercial.

You could rename the building to your name :p
 
Dazzling,

Well done. Always nice to see people practicing what they preach and getting ahead.

Makes my pissy little purchases pale in comparison, but at the same time gives me even more determination to get further ahead. Thank you for the inspiration (and the cup of tea the other day..............:eek: )

Couple of questions if you don't mind..........

1) Where to next ?

2) When are you going to write a book? You have a style that is so down to earth and readable.............If that Carter guy can do it surely you could.

ciao

Nor
 
Glad that a few of you got something out of it.

I neglected to mention financing for the deal, that's always the same. The loan was extended covering ;

100% of the purchase price.
All of the stamp duty
All of the other closing costs
One year's total interest bill.

Total loan works out at 115% of the PP.

Plan is to settle prior to end of FY, and pre-pay the loan yearly in advance. This should completely wipe out my entire PAYE tax bill for this year and next. Don't envisage ever paying tax again quite frankly. Happy to just keep paying interest.

Equity base, some residential and some industrial underpins the loan. As mentioned before, we are happily X-colled up the wahzoo. It's amazing what you can do when you don't have all of your loans in separate little protected silos.


Where to next ?? Good question, I suppose we'll bed this one down and introduce ourselves to our new tenants. We'll have to go through the usual paperwork of filing away all of the company and trust documentation, getting a depreciation report done, actually settle on the place and then it'll be time to do nothing for a while.

I reckon Mrs Dazzling is looking forward to a holiday after all of the searching and all of the renovations at home. Mental note - best do that one.

I've got a bit of a hankering to slap up a few big concrete tilt panel warehouses, one that has a 10 or 12m clear span truss that will accomodate the best of tenants. Just to say that I've developed once I suppose.


Write a book....nah....gave that up as a bad joke. Figured out there is too many hops to jump through, way too much time and not enough dosh in that alone, and I really don't want to leverage off the book for a series of stand up investor sessions. Those boys that flog that seminar type stuff, no matter upstanding they come across, are always tarred with the same slimy brush by the Aussie sceptical public. Plus, everyone in this country is too much in love with and only ever wants to talk about their houses and units and apartments.

Nah, I'll follow the grumpy ol Italian and Greek men in this game where they get massive and don't say boo to anyone.
 
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An image like this comes to mind, is this what you mean by massive ;)
 
I type with my two index fingers

Hi Daz;
Like you we have purchased a large commercial property after years of investing in our own business properties and a procession of residential investments where all the outgoings came out of our pocket. The first hint of how good commercial property could be was a few years ago when we vacated a premises we owned and renovated it to attract a solid commercial yield. At that stage we were novices at what a commercial tenant would pay and we allowed the agent to talk us out of the tennant paying the normal outgoings etc. The up side was the prospective tennant then approached us at the end of renovations ( we had spent 100K) he then asked permission to spend another 100K on structural improvements and fittings!!!:D

Last year we also stepped into the deep end and purchased another virtually new commercial building with vacent possession. We then hired a commercial real estate agent to find a blue chip tennant. The previous owner had tried unsuccessfully for two years to lease the building out using a local melbourne residential agent and was asking half of what we requested. We also demanded director guarantees and a bond of one years rent. Initially the commercial agent tried to reason with us but we refused to blink. The upside was we had a procession of offers and gradually our asking price started to come within our asking range. The agent couldn't believe the offers we refused. In the end the only compromise we made was dropping the bond to three months.
Everyone told us that no director of an ASX 150 publically listed company would give us a guarantee. Our solicitor said we succeeded because we had the cheek to put it in writting and stick to our guns.

We paid the agent a leasing fee and we manage the property ourselves. As the tennant is responsible for everything our involvement is typing out an invoice once a month and emailing it to head office in Sydney. In the six months the company has operated the premises has had a number of improvements to meet their needs and because they deal direct with us they have an answer immediatly. So we do lift a finger actually two index fingers and the occassional drive by to check the improvements on our investment.:p
 
Dazzling,

my hearfelt congratulations to you and your wife on your purchase!!

please feel free to post pictures for us all!
 
Might just keep it to the inside I think. Disclosed way too much as it is.
 

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Dazzling, I have been reading various threads of yours with great interest and enthusiasm. Whilst it is enspiring to read such storeys and personally feel commercial property is the way to go, I can't help but feel that I just don't believe it.

The reason is that I doubt this is in reach of the average residential investor. You talk about buying a multistorey office building in Perth that I would have thought was priced around the $20m mark more or less. You claim to have secured 115% finance yet people in finance indicate that 60% is the max likely for commercial property and have varified this from my own property purchase experience, including very large development projects. I am curious about what other forms of security were offered to support finance for this purchase if any? I am also curious about what cash was available to support the transaction?

Or, you are just a very wealthy guy and this is why you can pull these deals off.

It just doesn't stack up for me. Having the financial details behind this purchase would be invaluable in my mind to support what you are saying. Otherwise I am just finding it hard to believe. Sorry. I don't mean to offend, but couldn't think of a polite way of expressing this view. I would be delighted if you could destroy these suggestions of mine with facts and make me eat humble pie. I would learn heaps from this experience :)
 
Hi Klausb,

Dazzling did start out as an average residential investor, and getting into the larger commercial deals is just the same as getting into the larger residential deals....you just move up with each subsequent purchase.
 
Klaus,

Having met Dazzling and seen him go through his deals..its true :D 'and' impressive; *dazzled* the bejeezus outa me anyhows and he's now way outa my comfort zone..........................all I can think of is "one day" :D

Reminds me of an older italian gentleman I knew who owned a panel beating shop, then a few Industrial Property's with his partner, then more, then more (he also couldn't undertand why I was into residential by the way); I guess from small beginings great things come :confused:
 
Hey Dazza I have been reading the forum for a few years now and have soaked up most every detail and strategy there is on resi property investing. I have a ppor and 2 ip's in Adelaide and i can say that the only posts i am interested in nowdays are the posts on commercial properties etc as i find them to be the logical next step in this "game"
All i can say is to keep up the good work and to keep the forum informed about what you are upto because you seem to be the only one in the commercial game at the moment that is willing to share anything with the rest of us.
I personally am glad that the forum has created a specialist forum for commercial investing as i did notice that any such posts on this topic have been met with some resistance by the resi guys in recent years and i can say that i have learnt alot more about com the last year that you have been a regular contributor than before when it was seemingly a "taboo" subject.
Salute, Dan
 
...commercial properties etc as i find them to be the logical next step in this "game"...

...has created a specialist forum for commercial investing...

Yes, it is a logical next step in the property game. Some would say you start off in buy and hold resi., then maybe do renos, then move on to sub-divisions or other property developments...but, I feel that skipping the 'renovation/development' part of resi. and going into buy and hold comm. investing is just as logical a progression. You can remain an 'investor' in property, and to some extent stay out of the realm of the 'developer'.

This specialist forum for comm. property investing is the very first one created specifically for Australian investors. Overseas, in the UK and US, there are dozens of comm. property investing forums, with far, far more threads/posts.

As I've said before, I would hope that this forum grows to be more like these ones in the future.

GSJ
 
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