More discussion needed!

[Ridin-High]

pretty quiet in the comm sector atm, its the only one i enjoy besides the coffee lounge and the property other one.

Im presuming their is lots of smart eggs around here to do with this and yes yes ive read over the old material but its more exciting when its fresh and in bold txt on the forum display

Hyg,

Ridin High

 

[prandsa]

yes...yes it is.

 

[BV]

Ridin-High

I've looked at commercial 12 months ago but anything decent was very expensive.

I think this is probably the wrong time to be looking for commercial property.
Many companies are now suffering from reduced revenue and are downsizing and trying to reduce costs.

Many of them will go bust but before this happens, they'll be late with payments and the rent is one of those things they'll leave for later....

 

[Papps]

BV, maybe some of those factors you mention are indicators that it is a good time to be looking. With comm returning 6 -7% twelve months ago you can now get 7 - 9% yield. Not all industries are directly linked to whether Aus is in a recession or not, medical, allied healthcare, low priced commodities etc. The most important factor in this market, I believe is the strength of the lease and what their business is. Whilst the financial, construction and mining areas are hurting, this downward pressure on comm pricing is having a flow on effect to the more stable industries, hence throwing up some good opportunities. I am guessing this will progress further during 09/10.

 

[BV]

papps

You could be right there, however, I am generally scarred to touch commercial property.

I sometimes drive to a nearby shopping centre for a coffee and I see a rather large shop is still without tenant or buyer almost a year since the previous tenant went bust.

Such a long vacancy would have killed me.
I am not saying that something like this is likely to happen to everyone
but it could happen if we bought the wrong property, so IMHO commercial property is not for everyone.

cheers

 

[eggnog]

Don't know much about CIP but with my limited knowledge i'd have to go with papps on this one. I've been constantly keeping an eye out on CIP around brisbane and i've noticed in the past few years comms have been tightly held, with low yields (5-7%) compared with what i've heard of historical yields closer to 10% and those that came on market were crap locations or new constructions that were vacant. But now i'm seeing more stock on the market with some excellently located properties. Yields also increasing. I just have to figure out how I can structure things and find funds to make the plunge.

 

[Papps]

Maybe some of the posters who have comm could provide us with their experiences esp when they first started out and how they got over that bump. I myself am looking for my 2nd comm but am also in the lower end of the scale. Interested in others thoughts

 

[Ridin-High]

Papps one of my fears is like the others is the extended vacancy, in my local area penrith their are shops like others have said vacant for over a year

 

[eggnog]

And thats where purchasing a CIP with appropriate leases should mitigate the risk. If there is a directors guarantee, banked bonds covering appropriate rental durations and a signed term then if the tennants go bust you should be able to still hold the property for the assigned lease term on the same rent or at least for an appropriate set of time to find a new tennant.

 

[Ridin-High]

So further to that CF+ their would be mention of these guarantee's within the lease?

 

[eggnog]

like I said before, i don't know much about CIP. Don't even own any myself - maybe one day. But from what I gather you can put in what ever you want in a lease - don't limit yourself.

I've attached an example of a commercial lease. As you can see, there are provisions there for guarantors, events of defaults, bonds, etc. Section 15 is relevant to your inquiry. Please note that this is only an example I found on the net and should not be used as a template. Legal council should be sought for such things. I will hold no responsibility for any idiotic use of this document.

Maybe those with first hand knowledge could chip in.

 

[Ridin-High]

you only listed the first page uley

 

[eggnog]

hmmm. thats strange. Just had a look and max pdf file size is 2??kb. Sorry but file size I wanted to post was 38?kb. You'll just have to take my word for it

 

[Ridin-High]

or look up the website which i did. Thanks anyway.

I was talking to a local comm agent here and he was saying they do them for 100 bucks or something but if u want the good stuff he pointed me somewhere saying around 1500 bucks.

Anyone with idea on cost for quality lease covering most bases

 

[boods99]

Provisions for surety are usually listed in the schedule. Security is usually in the form of cash or bank guarantee. You should try to get enough coverage for 6 months of total moneys due, ie including; variable outgoings, statutory outgoings (if commercial lease), car parking, GST. Your success at getting your tenant to agree to this will depend highly on the market at the time. At the moment, you've got buckly's to get that much security (in Perth, anyway) but it is worth a try initially.

Good property lawyers usually have tight Leases that have been kicked, picked and poked around the place for years so you can be quite confident that all bases are covered. We use the same lawyer every time with the same Lease, only slightly adjusted to represent the agreement between ourselves and the tenant. Costs us between $800 and $1200, depending on how many changes need to be made.

I would not be using a Commercial Lease that only cost $100. That's me though. BTW, if it is a commercial Lease, you are able to recover all legal costs in regards to the preparation of the Lease from the tenant, so there is no reason not to pay extra and get a good one (no such luck if it's retail)

Boods

 

[boods99]

Anyone with idea on cost for quality lease covering most bases

RH, you need a Lease that covers ALL bases not just most! It will come back and bite you in the a$$ when you least expect it.

Boods

 

[eggnog]

Boods, how come you can't recover legal costs of drawing up lease from a retail tennant. Has it something to do with the retail tennancy laws?

 

[boods99]

Boods, how come you can't recover legal costs of drawing up lease from a retail tennant. Has it something to do with the retail tennancy laws?

Thats it. The RTA does not make provisions for this. In fact it makes the recovery of a whole heap of outgings illegal. The RTA allows both parties to pay for their own legal expenses.
Iv'e been told that the RTA is written in such a way so that it will protect the 'mum and dad" small busines owners, that make up a large proportion of the retail sector.


Boods

 

[capitalEyes]

Maybe some of the posters who have comm could provide us with their experiences esp when they first started out and how they got over that bump. I myself am looking for my 2nd comm but am also in the lower end of the scale. Interested in others thoughts

Hi Papps,

In the same boat as you (looking for #2). I bought an ugly regional industrial about 2 years ago with a tenant who is fairly reliant on the mining industry, which I thought would have put me in the 'vacant shed' firing line for sure but things have been ok. Lease tells them exactly what to pay, and when, and they're a fairly large company so I don't think they'll tank, but they may not renew the lease in a couple of years. Who knows? I remember when we bought our first res IP we insisted on a Defence Housing (DHA) lease which in hindsight we could have dropped the 'A' on. Fear of vacancy drove that decision which costed us 16.5% of gross rent for 'management' fees & rent income guarantee. We didn't have enough experience at the time to know that short vacancies are a fact of life, and that you don't need to lose any sleep if you plan for the odd one with some contingency funds.

I imagine the industrial will be the same, and spare funds aren't hard to come buy with the superior cashflow. My biggest hurdle on #2 is the lack of leverage. Have just leveraged 95% on the most recent res, but could only do 70-75% on commercial lend. If anyone has any tips on overcoming this would be glad to hear them - there's only so many times I can explain to residential tenants that there are more than 4 weeks in a month, before I'm checking myself in

 

[Ridin-High]

Update:

Closing in on purchasing something to get me off the ground and learning. Nothing juicy like the comm guru's on here

Here is the low down

- 115-20ish sqm
- Vacant
- zone 4b (showroom bulkygoods/light industrial application)
- On road with good daily traffic
- Net return due to crappy market is around 7.5-8% nett


Yet to discuss the structure of the sale, but will push for long settlement to continue advertising, if still vacant when taking posession (high possibility) mother will probably use the space to sell furnature/antiques until i find a tenant.

Need to obtain some good contact's to prep a lease and learn about best ways of marketing the property.

I will get their in the end hehe

Regs,

RH