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