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So I gave my solicitor the ok to go ahead, we still were waiting for formal written approval but I was told it would be fine, this would arrive 1 week before settlement was meant to happen.
Nice post Sanzy.
I've got a few questions. I understand if you don't want to answer.
- have you had a QS do a depreciation schedule? NOt Yet I have not as the building are mostly late 70's early 80's metal sheds. All fitout is owned by the tenats-
how comprehensive was your valuation? did it include reports on condition of air con units, sliding doors, structural integrity of improvements, etc? The valuations was quite comprehensive from the point of the area, expected value of property, buildings, How much the current Rent per Sq Meter is vs how much it is on average in similar area's for the same type of buildings. But it just described the buildings (e.g. wood framed metal shed, no damage visable). -
have you had outgoings compared and confirmed against similar CIPs? No, but the outgoings are just council rates and charges for the property so I am happy they are ok for me-
was the quoted yield not net of any significant outgoings? i.e. rates, utilities, air con and other maintenance, fencing, security gates, other plant, full or partial property management fees, land tax, insurance, insurance excess, plumbing, gardening, etc. Return was quoted as Gross in advertisment. I then used a spreadsheet to work out what the return would be as net of all of the costs.
- do you think there's any gaping risk uncovered in your leases? i.e. who pays legal costs if tenant loses dispute with landlord? The leases are a standard commercial rental leases, so there is definatly room to improve them.
- did you see a maintenance schedule and evidence PM had comprehensively overseen it on time, along with receipts for work done and work warranties? The property appears to have been paritaly self manage partialy managed by a local agent (turns out I think the owner and manager were related) so these types of details were basicly non existant. The fact teh vendor is still has a current lease to a building on the property and in talking tot eh other tenats the property recieved work when it needed it. but may not have had a formal schedule in place.
- do your tenants have similar risk profiles. i.e. are they reliant on the one industry or large client for much of their work? The tenats are a mixed bag, some are small self employed single industry others are self employed with contracts to big business, so the risk profile is quite mixed with about 3 core tenants on long leases with a number of smaller tenats on short term leases.
We've been burnt by an incompetent PM who failed to keep adequate records of reported damages. Significant insurance claims have been rejected because of a lack of documentation by the PM.
To me this is the biggest thing I am now focusing on. As there was not an established PM in place I have contracted the selling agent (after talking with them about what I was seeing this being and having them offer some suggestions on how to improve the cash flow from the property). I will be looking very closely into how everything progresses for the next 3 months, then again at 6 months then reviewing if I am happy with the services they are providing. But I can see a trip or two in the next 6 - 12 months to see the property and talk with the tenants to make sure they are happy and things are being attended to.
Great post Sanzy.
You said you secured finance at 8.15% and it's returning 10%, based on a 1M purchase price, what is your net return on this property per annum? (roughly, if you don't mind)
I'm guessing after expenses (management?) about 1%?
thanks for sharing.
Sanzy said:I have been reading this site now for a bit over 3 years and have taken a lot of information from it and thought it was about time to give back for all the information I have taken from it. I will start by saying this will probably be a long post that many may find boring but I hope it helps some one looking to move into CIP.
Hi Sanzy,
Good to see you getting in the CIP game. Well done.
Quick question...do your Leases have provisions in place to enable you to recover the property management fees from the tenants in the form of VO's?
Cheers
Boods
what is VO's?
sorry bout that. VO = Variable Outgoings.
Cheers
Boods
What what what?
In Comm you can even get your PM fees back via the tenant?
Splutter!
PM/management fees are incorporated into the outgoings.
You can and will pay PM fees even in retail.