Every man has to have a shed

[Dazz]

Thought I'd share with the group something the wife and I have been working on for the past 2 months or so.

We are very pleased as we've just signed off this morning on a Contract to purchase a shed.

It's a pretty decent sized shed at 4 acres in area, sitting on an 8 acre block. Room enough to swing the proverbial feline.

It's still conditional on a few things, including the tenant having first right of refusal....that is, if they wish and are financially capable of doing so, they can buy the place off the Owner at exactly the same terms to which we just finished negotiations.

We're pretty sure they won't buy it and we'll be free to proceed with the deal.

Nett rental yield, after all outgoings, was 7.6% p.a, not quite cashflow positive but fairly easy to hang onto. Land value was about 82% of the price. 9.7km from the CBD. Enough ticks in the boxes to pass our established criteria for purchasing property.

Hope to have the transaction completed and bedded down by November.

Will endeavour to post further details when the transaction is complete.

The magic of compounding really does work !!!!

 

[Belu]

Nice work Daz!

I cant wait until I have enough capital to be able to jump into Commercial and developing... first thing's first, get an IP!

once again, congrats

 

[sailor]

A shed! Well....good on yer! Dazz and Mrs Dazz strike again. Do love those figures.

 

[eggnog]

Nice one daz. You mentioned that the land value was 82% of the purchase price. Are you hinting at - when buying industrial properties you should purchase as close to land value as possible. And how does one find out about land value - is it the same as finding the council unimproved land values as per residential properties.

 

[GreenTreeFrog]

Congratulations on your latest round of negotiations and resulting aquisition!

How did you find the property?

 

[BoatBoy]

Impresive enough Dazz ,thats for sure.

Plan on getting all of Perth for a shed party?

Sounds big enough.

Dave

 

[Dazz]

Thanks Belu - you'll get there soon enough. Chip away and things will unfold.

Hi Sailor - yes, the figures are what it's all about. I just hope my Banker also thinks they are 'good enough'....I've asked for another 106% loan and so I think I'm trying his patience. He did say if they supported me on this one....it would pretty much broach their limit to which they wished to be "exposed" to me. That one knocked me back on my a$$ a bit. No one has said that to me before....looks like we have hit that X-coll limit people have been mentioning but I took to be a fairy tale. On that note, to the forum members who warned me about such things, I apologise. Apparently it does exist....which I think is BS, but anyway.

Cashflow plus - yes I am hinting at buying properties with a good chunk of their value being based within the land that they sit upon. This is a very common technique. Alot of people focus on this. I like to hover around the 85 to 90% level. I never go to 100% (vacant blocks) as I'm a bit of a scaredy cat in the development stakes, never having done one of those before, and the cost of holding is through the roof. I prefer to pick up something close to land value that pays for itself.

GTF - how did I find the property ?? Scouring the local market and waiting and watching for the right thing to come along. She's been a bit of a dry patch for us over the last two years in terms of acquisitions. LVR's have been screaming down, and just waiting for the right thing to rear it's ugly head before we pounced on it. I find that's one of the hardest things to do as an investor, keeping your powder dry waiting for just the right moment. There is so much dross out there, the temptation is just to jump on anything, but to be patience is one of the hardest lessons I've had to learn.

BB - yes indeed !!! A shed a party...what a sterling idea, perhaps I shall wait until the deal has been fully transacted before sening out the invites. Be nteresting to know how many people you could fit under a 4 acre shed...quite a few I imagine....looks like a bloomin' aircraft hanger.


I think I'm going to dump my usual Deppro guy and get Mr Scott the Depreciator out for this one...if we ever conclude the deal. The amount of fixtures and fittings is quite a handful. 27 toilets, a swath of A/C's, a bunch of roller doors and other paraphenalia, including another 4 acres of hardstand, which should be worth a packet.

I've only got two major hurdles to overcome to conclude the deal,

1. The tenant says NO...they don't want to buy it at the price I just negotiated for it.
2. The Bank says YES...go ahead.

Other than that, she's full steam ahead. The deal will be our biggest to date so far, and we are naturally fairly nervous with the prospects of exposing ourselves to this level. It get's a bit surreal sometimes....but you readjust the vertical scale on your graph and keep marching forward. Admittedly, the wife is getting a tad nervous now, and is keen to pull the plug at this level and just plateau from now on. I'm not ready to give in just yet.

 

[eggnog]

The deal will be our biggest to date so far[\QUOTE]

Hard to imagine. Didn't you purchase a whole office building not too long ago. Are you saying a bloody overblown titan shed costs more than a whole office building

 

[Dazz]

Mate - I don't think you're grasping the concept too well. The shed is big - yes, but the land is where it's at. Purchasing 8 acres of dirt less than 10km from the CBD is where all the value is at. The shed is worth a bit, and the incumbent tenant is worth a bit. That's it. She's 64 times as big as the normal suburban block nowadays....that's where the value lies.

The plan later on down the track...maybe 10 years or so, is to smack down the shed and put up something decent. The shed is just to tide us over whle the land value grows in value.

 

[GoAnna!]

Excellent work Daz

He did say if they supported me on this one....it would pretty much broach their limit to which they wished to be "exposed" to me. That one knocked me back on my a$$ a bit. No one has said that to me before....looks like we have hit that X-coll limit people have been mentioning but I took to be a fairy tale. On that note, to the forum members who warned me about such things, I apologise. Apparently it does exist....which I think is BS, but anyway.

I thought it was a myth too until I sold one of my properties and the bank wanted to take ALL of the proceeds. Which they legally could. That come as a huge shock when I had other plans for the money. Sometimes life teaches like no theory ever can.

 

[lizzie]

wow daz - your snowball is sure starting to roll! i too thought you had made a more recent purchase, but perhaps it was an older thread i perused.

we too are just starting to gather momentum - but in the residential development side. i can empathise with you, learning patience is the biggest hurdle!

 

[MichaelW]

She's 64 times as big as the normal suburban block nowadays....that's where the value lies.

$20-30M?

Well done mate, another nice bit of dirt for your collection. I like the statement about patience too, though council is trying mine at the moment. 4 months sitting on my DA!



Cheers,
Michael.

 

[yadreamin]

Dazz, what will you have to do for your lender to be back on their prefered list? [you know get more of their bucks for your bang]

Is it a case of waiting till your portfolio increases in value just like in resi ips?

Is canvassing other lenders an option for you?

I was under the impression most of your investments were cf + therefore serviceability not an issue for you. What has caused your lender to pull in the reigns ?

cheers yadreamin

 

[Glucose]

It's still conditional on a few things, including the tenant having first right of refusal....that is, if they wish and are financially capable of doing so, they can buy the place off the Owner at exactly the same terms to which we just finished negotiations.

We're pretty sure they won't buy it and we'll be free to proceed with the deal.

Nett rental yield, after all outgoings, was 7.6% p.a, not quite cashflow positive but fairly easy to hang onto.

Dazzling, If the current tenant has first right of refusal, and they don't proceed, are they then going to be your tenants? Or are you going to have to look for new tenants? If your rental yield on the rent that THEY are paying is so good I can't understand why they wouldn't want to buy instead of continuing to rent??

 

[BV]

Daz,
It sounds like a great deal, I hope you get it through.
Good luck
Bill

 

[kingchevy]

Ha classic love the fact a bloke started in property and had the balls to tackle commercial property head on like you have you are a big inspiration for me..

 

[Dazz]

Hiya,

Thanks everyone for the replies....a fewquestions in there.

I'm up in Singapore at the moment, on some poxy course for work, feeling a long way from the action. This is not good when you are a long way removed from the action. Nothing like chasing a cashflow mouse and having a capital gain elephant get away to spoil your day.

Goanna - that sounds dreadful having to forfeit your sales proceeds to satisfy the conservatism of the Bank. Nothing like spending your entire sales proceeds on CGT and loan repayments. takes the fun out of life I reckon.

Cheers Lizzie, the snowball sometimes feels like an avalance at times. We did make a recent purchase, and I'm now regretting it given the chunk of LVR it sucked up. We seem to buy props in pairs for some reason, so maybe this is a good match.

Michael, no nothing as grandiose....we're talking cruddy industrial land, not prime Sydney residential. Who knows in the future, it might turn into a barnstormer,but at this stage it's still drossville.

In terms of patience, I'm trying to be like these old buggers I have for neighbours that are like Methusala, but it just doesn't compute yet. I'm still too young to be a coolheaded old fuddy duddy.

Yadreamin - yeah, time heals all in my game. Values go up, LVR's go down and the Bank becomes happier with every %age point it goes down. Yes, our portfolio costs us nothing to hold. The ressy stuff is woefully negative and the industrial stuff takes up the slack. I think the Bank is baulking at the gross value of the exposure, which makes no sense to me....as long as they receive the interest payments - what should they care - right ?? Apparently they do. You need to appreciate that we are talking numbers approaching 100x what they are paid per annum, and hence the Bankers get nervous as they are fundamentally Bankers and not investors. None of them are as wealthy as their private clients, yet they have the final say...isn't that ironic ??

Glucose - the tenants are tied up with a 7 year Lease, and they are only 2 and a bit years into it. The reason they typically don't buy it when offered to them is a) they don't have the funds available and b) they'd much rather pump their available funds into increasing the capability of their respective business....supposedly bigger returns. There is a massive difference in cashflows between passive property investing and active business investing. This is a very natural question, and one I struggled with for years until I realised 40 or 50% p.a. business profits trumps 10% capital growth. That of course begs the next question.....what am I doing investing in this nonsense for and why don't I pump money into those businesses. Good question - my only answer is leverage.

BV and Kingchevy - thanks, tackling things head on is what I like to do....no point pussy footing around I reckon.

Best of luck to everyone....

 

[BV]

yes, the figures are what it's all about. I just hope my Banker also thinks they are 'good enough'....I've asked for another 106% loan

Daz,

Silly question but how do you get these 106% loans in commercial property?
Are you using equity from your residential properties?
Also, the banker you are talking about is he a branch manager?

Cheers
Bill

 

[Dazz]

Hi BV,

Not silly at all.

I'm finding the comm. world more and more like the ressy world from a financing POV.

Yes - stumping equity up from both ressy and comm props. Despite what people have read and been told about CIP's....they do appreciate in value.....and when they do you can leverage them again.

Because we are X-colled up the wazoo, all of the props get chucked into one big melting pot, a total value assigned by the Lender, and then 75% of that value is then able to be loaned. As long as we stay under that limit, everything is cool.

Our loan documentation is all tied up in knots and crossed like a kitten playing with some string. The mortgage brokers would have a heart attack if they saw it, but then I do whatever is necessary to leverage my equity to the maximum......that's what this property game is all about - right ?? That's been the tactic so far, and has worked well beyond our expectations.

However, as I mentioned previously, that may start to change now. If so,then I'll roll with the punches and adapt another strategy that once again maximises the leverage. Whatever it takes.

We are hovering at ~ 48% LVR, so borrowing everything for this one will take us to ~ 65% LVR.....so should be comfy. Does that answer it for you ??

My Banker is a guy who sits off to the side of the Branch network and just deals with a selection of clients. Unfortunately, he's just been promoted to Canberra of all places after 4 years collaboration, so I've just met his replacement. Not happy about changing contacts but what can you do.

 

[BV]

Daz

Thank you for your post,
I agree, sometimes x-col is the only way forward.
btw, I have been reading all your posts on commercial property and I have to admit
you certainly have an interesting way of doing things

Cheers