Industrial land in the regions

[pursefattener]

I have an industrial block of land in a small country town about two hours west of Melbourne . I have owned it since 2004 and I paid 25 k for it back then .

Total area is 1.689 ha . It has a rectangular shape and is on the edge of the estate . I have had it leased all this time to a business which uses the area for storage of concrete products , water tanks and engineering materials etc . It's not a pretty site . The only structure on it is a small garden shed which gets used for a few hand tools and a bit of fuel .

I've only had leases of a two year term during this time and that's not likely to change much . If I lost my tenant I most probably wouldn't get another in a hurry . I receive about 15 k of rent per annum . My only out going here is a small amount of insurance .

However , I have had it valued recently for other reasons and the valuation came back at 85 k . I'm not sure what to do with it longer term . It will likely be hard to sell . I have thought about investigating some sort of development but I don't like my chances .

It's only a small investment with a small return but making a little money sure beats losing money . I have often wondered why more businesses don't look to secure their premises in these closer in regional locations . What do you think ?

 

[topcropper]

Sounds good to me. Good luck with it all.


See ya's.

 

[Scott No Mates]

Alot comes down to the availability of cheap vacant land closer to the city & where the tenant's markets lie. If they need to drop off material, plant, equipment etc is it too far away or is it close to a regional centre where there may be an alternative market?

What are the development prospects? Have you considered splitting the block & providing services to the new block? This may give you your return on investment yet release another block/s onto the market.

Are there road projects planned for the area? Will the builders be looking for storage?

Will your site be more leaseable if you build a proper industrial shed or warehouse on the site?

 

[HiEquity]

I have often wondered why more businesses don't look to secure their premises in these closer in regional locations . What do you think ?

I have stopped wondering about this. The reasons are many and varied, mostly involving thinking they can use the money for more profitable things within the business. In this case, they may also feel they have enough exposure to the region in the business, without adding more exposure in the form of purchasing land.

Whatever the reason, it provides some good opportunities for investors.

Nice piece of real estate and nice returns! Beats RIPs with those numbers...

 

[Aaron Sice]

a PE of 2 after rates and insurances?

yes please!

 

[Aaron_C]

The reason why businesses don't own their own freehold is because they lack the capital to do so. Take a franchise (of a Maccas) for example - they have to pay at least $300k-400k for fitout for a small place. That's all equity - none of it is borrowed on the business itself usually. Then you have to find a good shop to run your business from to obviously make money. If it is a good site, the purchase cost would be massive as well. So you have to choose between being the business owner (high RoI) or being a landlord since you are restricted in your capital. If you can do both, great. The reality is most business owners do not have that kind of capital.

 

[Ideo]

I do a fair few industrial subdivisions and the like in regional areas.

A small town I wouldn't touch. A decent sized regional town that provides support to surrounding areas and towns is a good bet.

One client does a lot of big box retail/light industrial developments on the outskirts of major centres (Taree, Bathurst etc) and makes a very good living out of it.

 

[Scott No Mates]

Take a franchise (of a Maccas) for example - they have to pay at least $300k-400k for fitout for a small place. That's all equity - none of it is borrowed on the business itself usually.

Mic's model for freestanding stores involves Mic buying the land, getting the DA/CC & building the site, they have a queue of franchisees who will then stump up the cash (put their necks in the noose) for the fitout, playground, landscaping, catering equipment etc. They will then rent the building to the franchisee who is also locked into a supply contract for all of the food type products. What could be better than that???

 

[pursefattener]

Thanks for the reply .

Scott NM , the economy is pretty quite in the area . Not much to mention in the way of key drivers etc .

I have considered doing a development in the past but there is no demand . There are other smaller blocks in the estate for sale at 55-75 k . Been on the market for years !

Ideo , I agree with you . I wouldn't touch anything in small towns again but a larger regional centre that is growing is a much better bet . An hour from this town we have Ballarat or Warrnambool where available blocks are much more limited (and expensive)

Most of what I see in capital cities is right out of my price range .