my first commercial

S

splade

not sure how good or bad my offer is. was hoping some people with the experience could give me an idea.

background: deli and house under main roof. zoned residential. large country town, not in cbd but good location, own car park. owner wants to stay on for 10 months under a lease aggrement.

the deal I offered: $235 purchase price covers property and all shop equipment i.e fridges, cookers. lease is $550 pw paid upfront this covers house and shop. shop covers all its own outgoings. go halves in any expenses that are not seperated. i.e the rates are shared with the house.

any thoughts and ideas are welcome. I really dont know what im doing at the moment, just jumping in and hope ill swim :)

thanks all
 
hi
for me no but if you find another tennant that will lease with all the out goings and you have annual 5% increases then it may become a reasonable project.
you are getting a 12% return but then you have to take out the out going which i don't know what they are.
I try to get about a 8% as a rule with increases so by the time they are at the first renewal I am at a 10% return or around that.
I would need to have alook at the site to give a better over view but outer cbd must be around the 11% and have 5 x 5 leases in place and there are alot of those I try to keep my business and my tennant very separate so mixing inyou pay this and I pay that makes the water messy.
I like you pay all.
my .002
 
thanks, yeah i like 'you pay all' also but becuase its residential isnt the landlord supposed to pay the rates and water etc? I thought it was law, but maybe its just the norm and no reason i cant change it to make them pay all?
 
If it is zoned residential, are you allowed to run a business in the house?

As grossreal suggests, you are buying the property here plus business/equipment - so, at the end of the 10mth leaseback arrangement, the business/equipment may be worthless to you?

GSJ
 
The contract was signed on friday. in the end I changed the conditions to tennant pays all outgoings (thanks grossreal). The property is zoned residential for commercial use so it is perfectly legal to run a business from it. My plan is to try and get someone to manage the shop for me when the current owner moves out, rent the house out seperately and add another business premisis or one bedroom unit. the shop is grossing about 4.2k so i should be able to cover wages and still be way ahead. I plan to pay the manager commision based on what the shop is making, to help keep them honest and motivated.

The house frontage used to be a dinner bit of the deli which the current owners sectioned off to give more room in the house, but the house is now HUGE, with a door into what they are using as their bedroom. im going to split it through the bedroom to give a new sizeable office/shop/one bedroom unit area whilst still maintaining a sizeable 3 bedroom home with large backyard.

Thats my plan anyway.
 
hi splade
hope you do well.
look at changing the lease to 5 or 6% increases per year the business should be able to do this and it gives you a growing asset even if only on paper.
all mine are 5% or above increases anually.
all the best
 
so it isnt going all that well.... two major problems


first there is a clause in the contract declaring that GST is not applicble to the purchase, but now after checking with my conveyancer she has advised me that the vendor is registered for GST and so GST would definitely apply. worst case is 23.5 k extra to my expected purchase price but probably be around 10K once you take the residential portion from it.

Secondly we have discovered that the vendor has no trade waste permit, not sure exactly how much they are but my conveyancer thinks it could cost up to 30K if for example a pit is required to be built to store the cooking fat etc.

sooo seriously considering walking away from this one. Im not paying anymore than I offered. The vendor will have to drop their price to absorb the gst they said wouldnt apply. also if they dont get a trade waste permit I dont want to proceed either. Do i have grounds to rip up this contract if they dont meet these requirements?
 
splade said:
so it isnt going all that well.... two major problems


first there is a clause in the contract declaring that GST is not applicble to the purchase, but now after checking with my conveyancer she has advised me that the vendor is registered for GST and so GST would definitely apply. worst case is 23.5 k extra to my expected purchase price but probably be around 10K once you take the residential portion from it.

Secondly we have discovered that the vendor has no trade waste permit, not sure exactly how much they are but my conveyancer thinks it could cost up to 30K if for example a pit is required to be built to store the cooking fat etc.

sooo seriously considering walking away from this one. Im not paying anymore than I offered. The vendor will have to drop their price to absorb the gst they said wouldnt apply. also if they dont get a trade waste permit I dont want to proceed either. Do i have grounds to rip up this contract if they dont meet these requirements?
Click to expand...


I thought GST only applied if it was vaccant...
 
if it's sold as a going concern (ie with an existing tenant) then there is not gst applicable to the commercial portion of the building.

Trade waste permits and greasetraps are only necessary if cooking is done on site. Trade waste permits cost nothing to apply for, and only a small monthly charge, plus monthly or quarterly charges for the emptying of them and processing the the waste...but it could be expensive to install a greasetrap and necessary plumbing if not already there.
 
The vendor's solicitor is preparing a formal document to preclude anyone from seeking GST from me for the buying of this property at settlement and into the future. so that is good enough for me. The vendor was advised by their accontant that the property doesnt have GST applied to it becuase it is their residence... my conveyancer believes that they have been advised incorrectly, so we will see.

in regards to the waste. they are cooking on site. they make chips and other deep fried goodies. We found out yesterday that they are putting the fat into 44 gallon drums atm and then.... well who knows. they verified that they dont have an official permit, so they are contacting the authorities on that and getting it sorted...

tried to get a loan through ING. they knocked me back yesterday afternoon. saying that they wouldnt accept the property as security, the location didnt meet their lending criteria, wish they had told me that a week ago when I first went to them. trying ANZ today.
 
JoannaK said:
if it's sold as a going concern (ie with an existing tenant) then there is not gst applicable to the commercial portion of the building.
Click to expand...
?? really??

anything happen when the tennant vacates and someone else comes in? what sort of lease term does the tennant have to have so that GST is avoided?
 
yes really, i have purchased a few as going concerns...but only applies to commercial properties. as far as I know there isn't a set lease length time required....

you'll need to speak to an accountant to get specifics.
 
I really really need some help now. i dont know what to do...

the vendors solicitor has not drawn up any documentation to give me indemnity from the GST in the case that the vendor was indeed advised wrong about the GST obligations, they have not gotten a permit for trade waste, I have an out of this contract, ING refused to give me money, but i just dont know what to do...

should I walk away. I thought it was a really good deal so I should do everything in my power to try and get it through, get them to get the permit and get the letter of indemnity, but was i just dreaming and it really isnt that good of a deal that I should persue it any longer... if its a good deal i dont want to just give up, on the other hand if its only ok then i should run now, while i can. I dont know, i just dont know.

help please.
 
hi Splade,

I have re-read the thread...what is going to happen after 10 months when the vendor vacates the property, or is the vendor selling his business as a separate concern? Sounds to me like you've also purchased a business as well...have you done your DD on the business side of things as well as the property side of things?

What is this town like that you're considering....does it have growth prospects or is it just a cashflow opportunity?

And I still don't understand how a property can be zoned both commercial and residential....but I guess that's neither here nor there as there would appear to be some sort of existing use rights in operation here anyway.

Based on your first post, your yield will be around the 12% mark, but this is not certain beyond that 10 months that the vendor has agreed to stay on for....which is a real problem in my opinion. When commercial property is vacant, it can stay vacant for quite some time....and, what are your thoughts about all the fridges and other equipment that you're also purchasing as part of the property? If you re-lease the premises to a new tenant and they don't want it all, then you've done your dough.

If you employ a manager to run the business on your behalf, you're liable for all outgoings associated with the property..

Also, if they haven't got the tradewaste permit and the correct greasetrap, this could end up being costly...there are big fines imposed if the water authority find out that cooking waste is not being disposed of and treated properly, or worse still, getting in to the water system.

You also need to look at why you're having difficulty in obtaining finance....sometimes banks say No not based on your own circumstances, but because of the security (or lack of) the property being purchased....

It's up to you whether or not to pursue this deal, but if it were me I wouldn't be doing it....if i buy commercial property it's set and forget, I expect my tenants to pay their rent and outgoings and I do not get involved in the business side of things; afterall, property investing is a business in itself is it not?

this is an excellent case study for you when you move on to the next one (if that's what you choose to do)

Just my thoughts..
 
the property was not in an area that they would accept it as security. even thought the town has >20000 people in it and is only 3 hours from a major cities cbd. i was surprised. I think we just took too long to get all the information to them, it was a complicated loan so they thought stuff it.

also, ive given my conveyancer the go ahead to terminate the contract...
 
Hi Splade,

If that happens in future try Bank West, they don't generally care about location if they can get comparable sales, they're cheaper than ING too.

Regards
Alistair
 
Thanks. we had actually gotten figures from bank west but didnt put in the app becuase all this other stuff happened (GST and Trade waste permit etc). I'm pretty sure they would have dont it. figures were comparable, but redraw cost $100 per redraw. ouch... ANZ wanted $780 per year in ongoing fees, with no redraw. oh my.
 
its not over yet...

This has still not been resolved and i thought it might be good to update the thread about where im at so others can learn from my horrible mistakes :D

I wanted to terminate this contract because of three issues.

1/ no trade waste permit,

2/ was advised that GST applied, would be another 20k or so, on top of the asking price

3/ was advised that the vendor was not allowed to pay me rent in advance on a commercial property.

I tried to sort these issues out with the vendor but found i was just hitting a brick wall with the vendor simply saying that these things are not an issue. So from my conveyancers advice I tried to terminate this contract based on the finance clause.

The vendors were real mad and have gone to a lawyer and are trying to force me to settle. I in turn have taken my contract and all correspondence re the 3 issues stated above to my lawyer. well after 6 weeks (gosh lawyers are slow)

my lawyer has said that GST can be inclusive of the price i.e I pay less for the property + GST on that lesser amount which then equals the contract price.

He has said that the legislation that my conveyancer was refering to in her advice that they couldn't give me rent in advance doesn't apply here because it doesn't apply where the occupancy arises under an agreement for the sale of purchase of premises... which is my case.

so it seems that the only issue left is the trade waste. I rang the trade waste people today and they are going to call the vendors to establish exactly what is required and then give me a clear definite answer about what they really need to do. I feel pretty bad getting the water people involved if they are doing the wrong thing as they might get into trouble but i couldn't think of any other way to be sure that i wouldn't need to install a grease trap etc when i take it over...

so anyway. if the trade waste can be sorted it looks like this might go ahead after all. If so im hoping they wont hold a grudge.

so it seems that so far 2/3 of my issues really were not issues and i have done the wrong thing by this vendor ( unknown to me of course).
 
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