Ever thought of commercial?

This month's API, talking about commercial properties makes the usual points about better yields but also raises two important ones:

. Recent sales suggest that most small buildings are sold with vacant possession and are often bought by businesses seeking to exit the rental market;

. Very little in commercial property is available to smaller investors (i.e. who wish to invest less than $1 million).

How would you like to dip your toe into the commercial market while still retaining enough of a residential character to allow you some degree of comfort?

I am selling a property in Launceston to raise cash for other ventures. The property comprises four flats and a shop (a cafe) on one of the main streets. The cafe has been in continuous operation since at least 1990.

The rents on the property are
Flat 1: $55 p.w.
Flat 2: $120 p.w.
Flat 3: $75 p.w.
Flat 4: $120 p.w.
Cafe: $12,500 p.a.
giving a total rental return of approximately $32,000 per year. Depreciation schedules are available. Rates, water and land tax total around $5,500 p.a. and the property comes with the best PM it has ever been my pleasure to deal with.

I'm looking for a price of $420,000. The nearest equivalent property I can find has a single office with 7 suites on the ground floor and a single two bedroom flat, and is on the market for $495,000. If I can't move the property soon, I'll revert to plan B and strata title it (process under way already) to sell it off piecemeal.

I have deliberately left fat in the deal to make this a win/win, but I'd like to move quickly. PM me with offers, or post questions - happy to answer as always.
 
They are small 1 bedders. The really low rent belongs to an elderly couple who we didn't really have the heart to raise it on. Market rent would probably be about $75, although a little cosmetic work would have to be done.
 
Not yet. I'm checking one other option before taking it to the open market. Not that I've actually seen anything sold through caveat emptor, but I thought I'd give the forum a chance before I went out more broadly.

Gotta say, I'm a little surprised - most folks I've known have always really wanted a block of flats, especially one with strata potential.
 
quiggles said:
Gotta say, I'm a little surprised - most folks I've known have always really wanted a block of flats, especially one with strata potential.
Hey Quiggles,

Perhaps it's the fact that they aren't strata titled that is keeping the buyers from flooding your PM inbox. Often people looking to buy blocks of flats/units tend to opt for stratas so that in case of financial need, they can offload one or two.

I was recently looking at a block of 8 units, and although the price was good, the deal was not so appealing when I had to take the cost of separating them onto individual titles.

Aside from this, your asking price sounds reasonable and the property itself, a solid investment.

Good luck with finding a prospective buyer. :)

Cheers,

Jo
 
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Rental returns for each dwelling and shop / Lease lengths

per week per month per annum lease lengths

Shop ("Posh Nosh") $1067.71 $ 12,812 5 year lease expires 1 Nov 2006, with extra 5 year option.
CPI increases, with ratchet clause

Unit 1* $55.00 $ 2,860 expires 3 Nov 2005
Unit 2 $120.00 $ 6,240 expires 16 Jan 2006
Unit 3** $75.00 $ 3,900 monthly
Unit 4 $120.00 $ 6,240 expires 7 October 2005
=======
$32,052

*The tenants in unit 1 have been there for many years. Its current market rental is actually about $70 per week.
This could increase if the living room/kitchen and bedroom were repainted and re-carpeted.
(The bathroom has recently had minor renovations and has been repainted.)

The tenant in unit 3 is currently paying $75 per week, but her rent will be increasing to $90 per week shortly.
This will increase the annual income overall to $32,832. The rental value of unit 3 could be increased further to $120
per week if it was renovated to the standard of units 2 and 4.

Zoning details
The property is in the Launceston City Council's "Central Business District Zone".
This means that preference is given to retail activities and eateries at street level and residential use is encouraged above street level.

Heritage listing
The property is in a Classified Heritage Precinct and is on the Tasmanian Heritage Register. This basically means that you cannot
change the frontage of the building without permission and may need some permissions to make major structural changes within the property.
It also means that the property is exempt from planning fees and there are tax incentives available for roofing, guttering and similar things.
(I can give you more detail if you wish.)

Any photos
Yes, we have photos, I just have to hunt them down.

What is it near ?
St John Street is one of the major streets in Launceston. The GPO, the council buildings, Myers/Grace Brothers, the tourist information centre and
even our property managers are all located on St John Street. 127-127A is next-door to the Country Women's Association. It is also one block south
of, and on the other side of the road as, the very pretty Princes' Square. The property is L-shaped and the short part of the L is a laneway into Vincent St.

Details of property
The original building, which has been converted into the cafe/restaurant and unit 4 above, was built in about 1890.

Posh Nosh has been tenanted by the current people for about the last ten years, but it has been operating as Posh Nosh for even longer. It is very well
maintained with good clientele. The single car parking space is included in Posh Nosh's lease. There is also a wash house and toilet in the backyard
that is included in the lease. The rest of the shop area (very approximately 8m x 10m, according to some rough plans) contains a large restaurant area,
a good serving area with display cabinets, bain maries, etc, separate kitchen and preparation room, cool room and office/storeroom.

Flat 4 has been recently decorated and is in good condition. (approx size)
Large bedroom with built-ins 4.5m x 3.5m
Large lounge, 5.0m x 4.5m
timber kitchen/dining area 4.2m x 4.0m
huge bathroom with bath, shower over bath, toilet and laundry. 4.0m x 3.0m
Pure heat electric heat bank.
High ceilings and a stained glass window.

In about 1934-35 the three other flats were added at a right angle to the original building. Because the ceilings in these flats are standard height,
the two roof tops are very similar heights. The stairwells are predominantly concrete and steel.

Flat 1 is the smallest of all the flats. The living and bedroom areas require some cosmetic attention and a general spruce up. The bathroom
has been upgraded and repainted.
Kitchen/Living area 4.0m x 3.5m
Bedroom 4.0m x 3.5m
Bathroom with shower, vanity and toilet

Flat 2 is the middle flat. It was recently renovated.
Kitchen 4.0m x 4.0m
Bedroom 4.0m x 4.0m
Living area 6.0m x 4.0m
Bathroom with shower, vanity and toilet

Flat 3 is the top flat. It is in good condition, with timber ceilings.
Kitchen 4.0m x 4.0m
Bedroom 4.0m x 4.0m
Living area 6.0m x 4.0m
Bathroom with shower, vanity and toilet

Land Size is 250m2
Building Size is 306m2

Launceston itself appears to be booming. The announcement of a number of call centres to be located there and similar expansions will mean that there will continue to be a demand for residential property. At the same time, solid businesses like the cafe will be supported through the influx of new money and new employment. Of course many costs are lower there, hence the relocation of the call centres in the first place.

The property itself has some exciting value adding opportunities, especially the potential to strata title it. It is hard to find a one-unit apartment in town for less than $100,000, plus the shop is still responsible for a third of the rent. The potential value increase is therefore quite high. My wife has taken us a fair way down the strata process, and we can pass the result of her work on to you, but we've run across a rather large opportunity which makes me want to sell quickly.

The other BIG plus for the property is the property manager who is the best that I have ever come across in four states and two countries. She is prompt, proactive, efficient and pleasant. If I could hire her just to work for me, I would!
 
Where's the fat?

Quiggles,

I'm having a lot of difficulty seeing the fat left in this deal? At commercial interest rates of 8% and council rates etc.. ontop of this, the cost would have to be at least 9% with a 7% return in a cooling market. :eek:
Maybe thats why your inbox is seeing little activity. ;)

MJK :)
 
MJK said:
Quiggles,

I'm having a lot of difficulty seeing the fat left in this deal? At commercial interest rates of 8% and council rates etc.. ontop of this, the cost would have to be at least 9% with a 7% return in a cooling market. :eek:
Maybe thats why your inbox is seeing little activity. ;)

MJK :)

I have to agree. Add to this the exorbitant management fees that Launceston Agents charge.

I just sold my only Launceston property after sitting on the market for nearly 2 years. The main reason we decided to sell was the fact that we could not see any growth in the foreseable future and the fact that all the positive cashflow was being eaten up by the Real Estate Agency.
 
4 points:

1) Not all activity in my inbox is reported. :)
2) With the strataing half done and no structural work required the CG in this deal is pretty good.
3) I personally believe Lonnie to be surging due to fundamentals, rather than speculation.
4) High agents' fees??? Not on this property. (Under 10%, inc GST). And, as I said, the agent is the best I've ever dealt with.
 
Yup its all about the capital growth. Good luck with it. I'm sure it is someones cup of tea. :)

Sincerely,

MJK
 
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