Leasing - Mixed Bag

[Monopoly]

The 4 month vacancy is a normal 4x2 brick and tile house 5km from the CBD. It's got immaculate gardens, but for some reason is always hard to let. The previous Tenant was in there for 4 years straight paying $ 820 pw, but eventually left to purchase their own house. It took 6 months to let it before they moved in. We've had no less than 4 agents try and secure a Tenant since early January - supposedly the peak of the season.....but alas not even one application submitted. Leasing agents are at a loss. We've dropped the rent to $ 700 pw and still not a nibble. For an asset worth 1.4m, how low do you need to go to secure a Tenant. At $ 700 pw, that's a gross yield of 2.6% and a nett yield after outgoings of 2.0%......and yes, this poxy house is currently on my mental chopping block. My customers for this asset simply won't / don't / can't pay a decent return and so by my investing definitions it must go.

I'd be interested to hear your thoughts on how your leasing efforts are travelling.

Hi Dazz,

If a property is taking 4 months to lease, there's a problem. From the picture you provided though, aside from the fact there is no car garaging, I can't see any other reason why it would be so delayed.

I know people have said it already, but if the property is 5km from CBD I'm guessing business types would be looking to lease and this being so, may expect a tad more for the money they shell out, ie. garage to house their beamer or audi???

Also, albeit very quaint, it looks narrow and unless it is quite long, 4 bedrooms in (what looks like) a Californian bungalow would be tight?? Nonetheless a couple of DINKS would not want such a large home and would take preference over a smaller one with car accomm over one without!!

The gardens look lovely, but look like a lot of work. Most business types aren't generally "green thumbed" so you might want to consider cutting back some of the trees/shrubs, or alternatively provide a monthly gardening service thrown in.

Guess all I'm saying is, there is more to this than meets the eye. If a property is taking 4 months to rent, there is something that needs addressing whether that is the price or the paintwork....something's not right and hence no bites!!!

Good luck with it, and do keep us posted on it's progress.

FWIW....Call me crazy, but even with a low yield of 2.6% I still wouldn't offload it!! This style and so close to the CBD is worth holding onto IMO.

 

[INVSTOR]

Is anyone even making enquiries about the property? I have a property with no carport/garage. The first time I tried renting it I had heaps of enquiries and no (decent) takers. A prospective applicant who seemed very decent and interested in the property was going to do a driveby and get back to me if he wanted to see the inside. When I hadn't heard from him I called him back to see why he wasn't interested. It was because there was no carport. The following week when I had new enquiries I told prospective applicants that I'd be putting in a carport within 6 months. Most people ask if there is a garage or carport. Seven years later, every new tenant has told me not to worry about it once they move in.

 

[Monopoly]

Is anyone even making enquiries about the property? I have a property with no carport/garage. The first time I tried renting it I had heaps of enquiries and no (decent) takers. A prospective applicant who seemed very decent and interested in the property was going to do a driveby and get back to me if he wanted to see the inside. When I hadn't heard from him I called him back to see why he wasn't interested. It was because there was no carport. The following week when I had new enquiries I told prospective applicants that I'd be putting in a carport within 6 months. Seven years later, every new tenant has told me not to worry about it once they move in.

Excellent point here Invstor, you rang prospective applicants and asked them to "please explain...." and this important feedback enables you to get a clearer picture of what tenants want, regardless of whether they actually REALLY do or not.

When an inspection is held, it is crucial to get gather FEEDBACK from those browsing, whether they opt to apply or not. Sometimes it could be the simplest detail that as landlords we fail to see. It may seem insignificant to us, but it could be just enough to stop the potential tenants from lodging their application!!

Anyway, aside from learning what they want, it also demonstrates (to them) an interest to their needs by their potential new landlord(s). Kind of conveys to them that, you know, warm and fuzzy feeling....

 

[Ausprop]

This style and so close to the CBD is worth holding onto IMO.

in Perth the californians aren't held in high regard - I use to own one and most people suggested a bulldozer. I think they will become more sought after as time goes by. the biggest problem is that beyond the facade they dont have a lot of character besides wood floors.

are californians a popular style over east?

 

[Monopoly]

in Perth the californians aren't held in high regard - I use to own one and most people suggested a bulldozer. I think they will become more sought after as time goes by. the biggest problem is that beyond the facade they dont have a lot of character besides wood floors.

are californians a popular style over east?

I guess (as with most things) they won't be everyone's cuppa-tea, but they are certainly well regarded in some areas and by those who like older-style homes. Personally I think they are worth preserving but again, not everyone will appreciate them as I do. It's really a matter of taste, and if (as you say) they are not in demand there right now, they may well be later down the track, just depends on whether one plans to wait it out until they come into vogue!!

 

[wylie]

in Perth the californians aren't held in high regard - I use to own one and most people suggested a bulldozer. I think they will become more sought after as time goes by. the biggest problem is that beyond the facade they dont have a lot of character besides wood floors.

are californians a popular style over east?

Our first home as a couple was a bungalow, packed FULL of character. Very prized here in Brisbane, (possibly because there aren't a lot of them compared to queenslanders and post war houses) but obviously some people cannot see character if it hit them between the eyes.

Some people want modern and clean lines, but plenty of folk who will pay a LOT for a character queenslander or bungalow.

 

[DJBarnstar]

I would give my left tit for a Cowbung. They are highly prized around my area and very expensive. My parents in law have one in Wagga Wagga (Where there seem to be quite a few) and it is beautiful.

OT: Some idiot has painted a Canberra red brick one light purple here in Queanbeyan. They should be shot.

 

[CHam]

Put up a carport and offer fortnightly gardening included within the rent.....

 

[SB25]

Hi Dazz,

Sounds like you have a strata floor in a CBD building - most CBD office leases are on a gross basis, so if you are recovering outgoings in addition to rent I'd say your off to a good start. Extra points to you if you are recovering land tax as well.

I'd be cautious about stringing them along for too long in the negotiations - a tenant who occupies 6 floors and has naming rights would be quite attractive to an insto owner. These groups also have the capacity to throw about incentives packages which could entice your tenant to relocate and sublease out their old space.

Do you subscribe to any of the various agencies' databases? Most of the big 4 have substantial in house research, if you log onto their websites you should be able to download it. It could be helpful to get an idea of the net absorption rates, current leasing rates for different grade stock and incentives packages being thrown about in the Sydney market.

With yields softening we are seeing a 'flight to quality' in which good tenant covenants are supporting underlying asset values and substandard ones aren't as buyers factor default risk and associated re-leasing costs into their cashflow. A fresh lease to a good MNC could help your cap rate stay lower.

Maybe you can ask for a market review mid-term to allow you to realise an uplift in rental if the market moves that way?

All of the above just IMO, so please feel free to take on board or disregard as you will.

Cheers,
Sam

 

[Dazz]

Soooo.....things have been trucking along quite nicely of late, currently negotiating my little sox off.

Have my hat firmly placed in-line with my goal of owning property without any cost or any hassle from Tenants.

To that end, progress is being made ;


1. Finally received an application to rent the house for $ 700 pw from a Doctor on a salary of 150K pa and her useless limp wristed husband. The in-going whinge list was as long as your arm, with them dictating when they wanted to move in, what they wanted done to the place and how they intended to do nothing as they were oh so busy and important. That application took about all of 2 minutes to be summarily rejected and the For Lease sign taken down. Bullet has been bitten. No more residential Tenants and all the accompanying baggage shall be entertained. Begone from my life.


2. Am meeting a sand blasting company at lunch today to execute a 2+5 year Lease over our ugly duckling industrial derelict sheds. They are starting out at $ 5,000 pw and increase from there. They will also need to pick up all the outgoings and handle all the maintenance. They plan on pumping about 100K into the place to manipulate it into what they want over the next 7 years. A joy to Lease out and have as Tenants.


3. Received our retail DA from the council last week - first one we've ever had. Re-building a few shops to get them aligned properly and eliminate a 'dead mall' that produces no rent. Was out speaking with the Coles representative yesterday, they are looking at taking space for a liquor store for the next 15 years.....I'm up against the big boys negotiating, but once in, they should add millions to the value of the place. Also talking with Kebab store owners and perhaps introducing a hardware store, all good fun. Took a call yesterday from a hair and beauty salon who want to join in....heaven help me, that's a fair way removed from my typical hairy @$$ed truck driver type of Tenant. Women poncying about with manicured nails, what a pain in the ****.


4. Tried to negotiate in a nice friendly manner with my biggest Tenants over in Adelaide. They decided to play hardball instead, so they've just been issued with a notice from my solicitors and we now need to go down the hard road. I'm confident we'll get another 10 year Lease in place.....they've beenr enting there since 1972 and have future Govt supply contracts in place, so they aren't going anywhere. They've called my bluff so now we get to dance. Should be fun.


5. The office space in Sydney is off the boil for now. They've still got a year to go on their Lease. They'll definitely play hard ball.


6. Our last shed that is for lease, and has been for 18 months, the neighbours are now looking at it. I've got them signed up on a 5 year deal, but trying to consolidate the lot under a fresh 10 year deal....we'll see. Spoke with the head duck a few days ago and reckon we'll come to some agreement within the next month.


Never a dull day. For the life of me I can't imagine trying to do this whilst actually holding down a job.

 

[Sanzy]

Thanks for the update on this Dazz,

Your posts were a big help in understanding the CIP is not the big scary monster it first seems when trying to get in, The landlord gets to be the big scary monster in CIP.

I can understand how this has turned into a full time job for you witht he number of properties you have on the boil. I can only hope to grow to teh type of size of property you have. here is still pleanty of time for me.

Oh and as for doing it while holding a 9 - 5, that is why I have a property manager who at 7% takes care of it all and does the negotiating and locating of tenants for me. Just need to get the contracts to say the tenant pay's for property manager and I will be set.

Thanks again for your unique view on this fun game of being a land lord Dazz

 

[Aaron Sice]

God damn you've been busy! I like the sound of the 'acquired' dead mall space!

Good to see the shed is rented, I know it was only a baby but the last thing you need is a bunch of rabid squatters.

It appears my forays into resi get deeper as yours get lighter.

Maybe it's one of those universey polar every action has an equal and opposite reaction deal.....or not.

 

[redwing]

Fascinating reading Dazz, interesting to see it all unfold as you go through your dance steps..thanks for the posts

 

[Dazz]

Yeah, the pace of leasing deals keeps me off the streets for the moment.


Starting to move some stuff and constantly being fed with leasing enquiries for the shopping centre, so all going well.


Coles haven't come back yet, they make their final investment decision mid July. I'm sure they'll try everything in their kitbag to screw me down as far as possible. Not much I can do against them. They'll add massive capital value to the property if I can sign them up for 10 years, and also encourage other good Tenants to come onboard as well.


Finalised a new 5 year Lease with the CBA for their ATM out there. Managed to lift the rent by 82% compared with the agreed rate 5 years ago. That was my asking price. They countered with a 60% lift. I told them forget it - take your machine and bugger off. The next day they rolled over and agreed to the 82% lift. A nice small win. That's the first time I've ever been in a position to dictate terms to a large Big 4 Bank. It felt good.


A real estate group put a bid in to join us, 200 sqm for 10 years within the centre....so they should be OK. They don't pay as much as say a newsagent or chemist for floorspace, but they are basic desks and carpet....simple simple....no generation of big waste like a F&V shop or a fish and chip shop with the grease and fats etc.


Had a florist put a bid in last week.....would be a pleasant addition to the mix, although the area is as rough as guts. I don't think husbands out there buy their wives flowers. I think the norm is to buy a carton and then go home and slap her.


Great to get the ugly duckling sheds leased away. That pays for our entire living expenses, so great to have that off my shoulders.


No word from our biggest Tenants. They need to get back to me by the end of the month whether they wish to extend or not. I've got a tiger by the tail with that one, whch could bite us badly if they leave.....all I can say is Boards of big companies take soooo long to make a decision, it's painful.

 

[Compropmanager]

Good to hear that you are having as much trouble getting the tigers in the cage so to speak as we do.

6 months later and still waiting on the approval to draw up new lease docs for a large health services provider. lease ends in 1 month (thankfully we have a new tenant waiting.)

Dazz do you find that your smaller tenancies want the premises you are offering right now or do they go through a methodical process of D&D like they really should. seems like most of the time we spend is wasted on telling these people that they have to pay X or Y because they signed a lease containing X or Y.

 

[BuildingBlocks]

Had a florist put a bid in last week.....would be a pleasant addition to the mix, although the area is as rough as guts. I don't think husbands out there buy their wives flowers. I think the norm is to buy a carton and then go home and slap her.

However if you don't have a standard shopfront for them it is a perfect business to put right in the middle of dead space in a satellite/booth style setup.

 

[Leghorn]

Interested to know how you end up wrestling with the tiger! Maybe spice it up for them and let them know the competition wants to take their space, start the discussion about their makegood.

Sounds like a good active centre that one.

 

[Aaron Sice]

Interested to know how you end up wrestling with the tiger! Maybe spice it up for them and let them know the competition wants to take their space, start the discussion about their makegood.

Sounds like a good active centre that one.

he forgot to mention the bowie knife between his teeth

 

[Dazz]

Urrrgghhh, retail - what a complete and utter pain in the ****.


Coles are still chinwagging and confabbing amongst themselves. "Could you please provide this sales data, could you please provide architectural details, could you please provide the tenancy mix, could you please provide the leasing schedule for all other Tenants, could you please wipe or ***".....and after all that they are lining me up to pay bugger all, and make it so financially unattractive for me that it will be borderline whether we go ahead.


Have a meeting with a Halal butcher out there at midday tomorrow. That'll be interesting. Six butchers have come thru so far....none of 'em have any money and the business is ****. How they make money I'll never know.....it's easy to see where the retail mark up is, and it ain't in meat.


Had an excellent meeting with a hairy @r$ed demolition manager who wanted to take over our sheds that have been empty for 18 months. What can I say, a business who finally wants to be there. His demolition yard way out in whoop whoop is just too far away, and like most principals of business, they all live in the western suburbs and are sick of driving back and forth to whoop whoop and want something closer in.


Yeah baby.....my kind of deal. No Govt agencies involved, no pre-Leasing obligations, no mandatory disclosure statements. Simply you want it - pay me 5 months cash in advance (4 months Bond that ends up in my account earning me interest) and 1 month in advance....and sign this Lease. Close your eyes when you do it cos it's gonna hurt. You bewdy.


Instead of leasing him the office and sheds etc at $ 80 psmpa, we agreed on a rate of $ 35 psmpa for the entire block. Same money....but I'm just renting him the block for 10 years. No responsibility on my part for any of the infrastructure. Roof caves in - so what ?? Plumbing and electrical faults - don't call me. What to smash something down to make more room - go for your life.


Anyway, an old Italian guy....obviously a Joe, or Joey to his mates....oodles of cash, just the type of guy I like doing business with. I asked him if he had a junkyard dog....I've always wanted a Tenant with a junkyard dog....at least you don't need to worry about a pathetic little $ 100 Pet Bond with them.


He doesn't read too well, nor have access to a computer, so luckily I printed out all of the paperwork and took it along just in case. Handed it to him, but he didn't read it...I strongly suspect he is illiterate, but I'm sure his sons who are both older than me can read OK.


All going well, if he gives it the final nod, we should have that wrapped up this time next week. After that, I won't need to worry about that place 'til mid 2021. Here's hoping.

 

[wylie]

Coles are still chinwagging and confabbing amongst themselves. "Could you please provide this sales data, could you please provide architectural details, could you please provide the tenancy mix, could you please provide the leasing schedule for all other Tenants, could you please wipe or ***".....and after all that they are lining me up to pay bugger all, and make it so financially unattractive for me that it will be borderline whether we go ahead.

I'm wondering if Coles indeed knows (of course they do ) that without them as a major tenant, the centre itself will likely turn into a white elephant, and hence they can drive the prices down to suit themselves.

Our local shopping centre is anchored by Coles, totally uninviting from the street, hard to get into quickly, ie. must park underneath or on top, no parking outside for the quick run in for a loaf of bread.

There are supposedly 35 specialty shops, but I don't think the owners can count .

It has a good mix though, bread shop, deli, reasonably upmarket clothing shops, good fruit shop, newsagent, liquor outlet, pharmacy, coffee shop, optometrist, Lifeline, gift shop, health food shop and a couple more I cannot think of.

I suspect though, that without the Coles "anchor" the whole centre would just not get the numbers through the door to make any of these businesses viable. I imagine that would put Coles in a very powerful negotiating position.

Is that pretty much the case with your centre? If you lose Coles as a major tenant, is there a high risk of the place becoming a white elephant?