The yield here is lower about 6.6% once you take into account the outgoings.
I must confirm with the agent but I don't think the tenants are doctors.
Going Commercial
- Thread starter geoffw
- Start date
The yield here is lower about 6.6% once you take into account the outgoings.
I must confirm with the agent but I don't think the tenants are doctors.
Well china, I don't agree on that one.
Quality of building goes up the more you spend...this applies exponentially so for commercial properties. You can actually get better tenants like banks, supermarkets, listed companies etc - securing better quality of rental income.
I would think it's far more risky to put your money into a CIP where the tenant is potentially just a small business / sole trader where your rent is eating up 50% of their takings and is only a matter of time before they bail on you. Just my 2 cents.
Tenants pay outgoings why are you taking them off your yields
Why are you so fixated on having a doctor as a tenant?
I know this group well. If there is a group of doctors there, they are unlikely to move and are unable to move easily. General practice does depend on locale and geography for its business. They are also usually easily pursuable for rent and cash and are unlikely to default. It is a high cash flow, lucrative business wherein rent is not one of their major expense nor concerns.
So my criteria, namely:
medical tenants - preferably long term
close to cbd sydney
7 plus percent yields
are quite hard to find
I understand these points but for my particular situation, purchasing a 5m asset would consume all my resources and place my entire investment portfolio into one asset. Surely, this cannot be a good thing - when most would advocate having some holdings in cash, shares and property as part of an overall diversified investment mix.
No, I think diversification for the sake of diversification is nonsense. You put more money into things that generate a good return, and less money into things that don't. Buying something for $5m with a $500,000 buffer (easy for you), plus you get 12 months or more bond from the existing tenant - and you are good to go...
So how would this work in terms of funding a 5mil purchase?
I have PPOR worth 700k of which I can access 550k in LOC. I then have about 2mil in investible liquid funds - cash and shares. So I really have about 2.5mil to bring to table and then I would have to borrow the remaining 2.5mil plus costs.
At this stage, I would have nothing left and everything has been sunk into this 5 mil purchase?
Is this the structure you had in mind?
That is all well and good from a due diligence point of view, but to over personalise an investment and artificially restrict your investment options due to tenant industry?
If you were an accountant or lawyer would you only buy CIP's with an accountant or lawyer tenant? There are far more profitable businesses out there as tenants than suburban medical centres with GP's diagnosing sniffles and coughs for bulk billed reimbursements.
But it is your money and you can do whatever you like. It is investment 101 to not get bogged down in personal attachment, and passing up a heap of great investment opportunities simply because the tenant is not a doctor... its investment madness.
Dave I agree with you in principle. Investment should be about the hard numbers and not personalisation.
However, I would like to make a few points.
If I know an area or professional group well, I will be able to much more confidently select a good price point for purchase. I will be able to know what is overpriced or underpriced. Then ultimately I should be able to make more profit.
There is also the sleep at night factor. I am dealing with less variables.
Having not owned any IP before, it gives me a lot more confidence in dealing with areas and groups that I know intimately well. Until I become more experienced in PI.
However, I would like to make a few points.
If I know an area or professional group well, I will be able to much more confidently select a good price point for purchase. I will be able to know what is overpriced or underpriced. Then ultimately I should be able to make more profit.
There is also the sleep at night factor. I am dealing with less variables.
Having not owned any IP before, it gives me a lot more confidence in dealing with areas and groups that I know intimately well. Until I become more experienced in PI.
Yes. With a commercial purchase like that you can borrow at least 70% LVR. So the only cash you need to put down is 25% deposit + stamp duty - so 30%. That's only $1.5m - leaving you with $1m spare. Done. Add to the fact that you can get bank bill rates on commercial loans down to low 5s (or mid 5s with no annual reviews) - what's the big deal?
No he wouldn't as he would want a building not a part of a building.But I have to ask...... would DH buy any one of these
DH and I should join forces and do a mixed project - comm and resi
http://www.realcommercial.com.au/property-land+development-wa-perth-500821823
We'd end up divorced though by the end of it though - just building our own PPOR was fraught enough with trying to agree on stuff.
Thank you, that sounds much more reassuring to me - I like having cash in reserve, gives me a feeling of security. These are big numbers for me and hence,are a big deal. I remember shaking for a few days after purchasing 700k PPOR.
I did not know that interest rates for commercial were in the 5s - I always thought that as a general rule of thumb, they are resi rates plus 2, so about 7 right now.
So now again, we are back to finding the appropriate property which is where I have been stuck for some time.
time to perhaps engage with someone that can provide guidance, cost of holding the asset is a prime consideration surely ?
Non reviewable fixed term loans are approx 5.6ish for 3 and just over 6 for 5 years.
Id expect though that you will be more inclined to take a CBA offering
ta
rolf
If yield is 7 plus, maybe even 8? then cost of holding asset at 70% LVR should be a non-issue? It should be cash flow positive if tenants pay outgoings?
What is CBA offering?
whatever they offer on the day when one signs up.
For a comm term loan without annual reviews, you may need to break you big bank preference.
ta
rolf
It depends. They will insist on annual reviews - which I detest.
Reality is we all know china will probably never buy anything.
In 10 years time, when that 6% building is now renting at 18% yield based on the original purchase price, there'll be a new one complaining about how the investments in the market are so bad blah blah blah.
I should sell you one of those things my folk's friends bought for $2m and is now worth around $12m and rents for around $550k. But I'd have to go back in time for 12 years.
In 10 years time, when that 6% building is now renting at 18% yield based on the original purchase price, there'll be a new one complaining about how the investments in the market are so bad blah blah blah.
I should sell you one of those things my folk's friends bought for $2m and is now worth around $12m and rents for around $550k. But I'd have to go back in time for 12 years.
This is depending on the loan amount, I believe that the cap for review is $2M which was previously $1M. I don't deal with commercial day2day, but dads sitting next to me and he previously was the state manager 12 months ago.... So unless its changed again. LOC doesn't have review but obviously comes at that higher rate like you originally thought china of around 1-2% higher.
I don't really think that China would have an issue with the reviews, he would probably like the fact that the bank is reviewing
Where can I get mid 5s with no reviews? Ammortising over how many years?
My fixed term is up in Jan and am eager to bring on the savings!!