Newby's property purchase with a twist

[Mimoza]

Hi Everyone,

I am new to this forum so greetings to all!

I just landed myself in a situation that means I need to educate myself on commercial and mixed use property investment. I know I have to get my accountant's help with this, but I'm sure the expertise of the members on this forum can also be very helpful.

I have recently sold the big family home to try to adjust to some inevitable changes in my own life and probably in the markets as well.

Firstly, I bought a building block in Warragul where I am planning to build a smaller four bedroom house with a view to either keep it as an investment and/or perhaps retire into it when the time comes. Alternatively, I might sell it, I'm not so sure yet.

On the other hand, I bought a small shop with an attached 3 bedroom flat in Ferntree Gully, zoned Business 1. I didn't exactly aim for this one, I thought I will buy a residential property near a train station so my uni student kids can catch the train. However, after being unable to find the right property, with only 2 months left until my house settles, we all fell in love with this place, and my sons are already getting very excited to start a business there, while I am very happy to retire Mum's taxi, and live 300m from the train station. The place is not that pretty but the numbers are......

But I guess it can become quite a mess if I don't have it set up properly from the start, so any comments would be much appreciated.

Cheers,

Mimoza

 

[Bird Dog]

Hi Mimoza and welcome to the forum.
Congratulations on your two recent purchases.
You've given us the "how" and a little of the "why" you've arrived where you are today however you may glean a little more advice from forum members if you articulate a little more on your future.
EG: You mention about the kids and uni etc but perhaps if you give us more data on what you hope to achieve in the med to long term, we may be able to offer some advice.
Things such as your current tax situation, current leveraging and what you hope to achieve when you retire? How far off is retirement? Are you currently pulling in an income etc.
These are all factors that will effect how your question is answered and you're right, the best person to answer all that would be a qualified accountant.

Also, are you wanting an education on commercial and possibly how to secure a tenant for your shop?
Business 1 is a good start on flexibility however it will depend on the shops location, passing traffic (both car and foot) as well as your commercial neighbours. EG: Are there any other vacant shops in the strip? What types of business are they?
Which side of the train line are you on? The shop side or the cemetery side as this will have a bearing on the type and quality of tenant you attract?

Give us a little more detail and we can take it from there?

cheers

B.D

 

[Mimoza]

The "why".....

Hi B.D. and thanks so much for the welcome.....

You raised some very valid questions about my post - some of them are easier to answer than others. But I do understand that ultimately it is the accountant's job to put me on the right foundations. However, I am hoping to receive a few pointers to some relevant information somewhere among the posts on this forum - so I can gain a better understanding of my situation and possibilitites.

Firstly the issue of leverage - currently just under 70%. As a market watcher in my free time, my instinct is to reduce that to as low as possible, as soon as possible. The idea behind buying land and building in a much cheaper area was to minimise my borrowing, however, the boys put up a strong resistence at the prospect of a daily commute of 1.5 hours to the city and then back, which is fair enough. (not to mention, a regional town is so "un-cool" for a young boy )

So it seemed like my plan to get rid of debt while maintaining certain living standards would be difficult to achieve. Perhaps I should have sold the block but I thought I'll give it a try and still build the house (its fate to be decided later) and looked for an investment property in the suburbs, near the train line, to be a base for the three of us while the boys are learning to stand on their own feet.

This might come sooner rather than later as they both got very excited at the prospect of owning a shop attached to our residence. The older one was already taking certain steps of setting up an importing business even before we knew this property existed and now he seems very keen on utilising the shop himself - he wouldn't even let me consider a lease to someone else. His ideas are still taking shape of course but it looks like we'll have to give this a go. He would like me to look after the book keeping which is fine as I have some experience in that. Apart from being a taxi driver and housekeeper to two teenagers I have a 40K job I am able to do from home, if the job will still exist I have a good chance of being able to continue with that for quite some time - and feel a bit like I am already retired And if the boys will succeed in their endeavours and will generate enough income to cover the loan payments, I would be happy to leave the house in their hands and live the quiet country life...

As for the location, the shopping street around the Ferntree Gully Station is quite user-friendly, runs on both sides, with a good mixture of small businesses, easily accessible on foot and even carparking is in reasonable supply. I haven't seen any empty shops. Our building is on the left hand side of the road towards the station from the nearest main road (Burwood Highway), currently the first one we see as we drive past the last residential block as there is a vacant lot on the corner - which gives us a huge wall for advertising as long as it's not built in. Across the street a new apartment building is under construction with 16 flats on 3 levels, and next to that is a small petrol station. Our next door neighbours are an Antique shop and Australia Post.

So this raises a few issues such as a mixed use property, possible business partnership within the family, business structure and things like that. The house I'm building in Warragul might get sold as I am fancying another block there that I would rather keep for my retirement if I get it at a good price.

Well, I have tried to keep this post as compact as possible while giving the most information I could, hopefully it makes some sense and thanks to everyone who spends some of their valuable time with considering my unique situation, especially those who even care to respond.

Cheers,

Mimoza

 

[Bird Dog]

Hi B.D. and thanks so much for the welcome.....

You raised some very valid questions about my post - some of them are easier to answer than others. But I do understand that ultimately it is the accountant's job to put me on the right foundations. However, I am hoping to receive a few pointers to some relevant information somewhere among the posts on this forum - so I can gain a better understanding of my situation and possibilities.

Firstly the issue of leverage - currently just under 70%. As a market watcher in my free time, my instinct is to reduce that to as low as possible, as soon as possible. The idea behind buying land and building in a much cheaper area was to minimise my borrowing, however, the boys put up a strong resistence at the prospect of a daily commute of 1.5 hours to the city and then back, which is fair enough. (not to mention, a regional town is so "un-cool" for a young boy )

So it seemed like my plan to get rid of debt while maintaining certain living standards would be difficult to achieve. Perhaps I should have sold the block but I thought I'll give it a try and still build the house (its fate to be decided later) and looked for an investment property in the suburbs, near the train line, to be a base for the three of us while the boys are learning to stand on their own feet.

This might come sooner rather than later as they both got very excited at the prospect of owning a shop attached to our residence. The older one was already taking certain steps of setting up an importing business even before we knew this property existed and now he seems very keen on utilising the shop himself - he wouldn't even let me consider a lease to someone else. His ideas are still taking shape of course but it looks like we'll have to give this a go. He would like me to look after the book keeping which is fine as I have some experience in that. Apart from being a taxi driver and housekeeper to two teenagers I have a 40K job I am able to do from home, if the job will still exist I have a good chance of being able to continue with that for quite some time - and feel a bit like I am already retired And if the boys will succeed in their endeavours and will generate enough income to cover the loan payments, I would be happy to leave the house in their hands and live the quiet country life...

As for the location, the shopping street around the Ferntree Gully Station is quite user-friendly, runs on both sides, with a good mixture of small businesses, easily accessible on foot and even carparking is in reasonable supply. I haven't seen any empty shops. Our building is on the left hand side of the road towards the station from the nearest main road (Burwood Highway), currently the first one we see as we drive past the last residential block as there is a vacant lot on the corner - which gives us a huge wall for advertising as long as it's not built in. Across the street a new apartment building is under construction with 16 flats on 3 levels, and next to that is a small petrol station. Our next door neighbours are an Antique shop and Australia Post.

So this raises a few issues such as a mixed use property, possible business partnership within the family, business structure and things like that. The house I'm building in Warragul might get sold as I am fancying another block there that I would rather keep for my retirement if I get it at a good price.

Well, I have tried to keep this post as compact as possible while giving the most information I could, hopefully it makes some sense and thanks to everyone who spends some of their valuable time with considering my unique situation, especially those who even care to respond.

Cheers,

Mimoza

Apologies for my delayed repsonse Mimoza; I've been traveling.

You've provided some great info that will be very useful when speaking with your accountant. There was also a little method to my questions as I feel it's always a good idea to think about those things before you visit a professional as it will mean your visit is both shorter (and cheaper) but is more powerful.
This area of the forum is mainly focused around commercial and given your son it most likely going to be your tenant, there probably isn't much assistance I can provide.
I will tell you however that side of the train line you reside on is the better of the two and the fact that AusPost is your neighbor is also a positive sign.
What I will also mention is to try not to confuse your son business with having free space available. Just because it's there, does not mean it is the ideal spot for his shop front and could mean the difference between sinking or swimming when he's just starting out.
Cheap (or free rent in this case) may not equate to a sensible business model so please ask him to keep this in mind when writing his business plan.

Here a couple of other post you may find interesting:
http://www.somersoft.com/forums/showthread.php?t=58689&highlight=mixed

Also, Kudo's to Willister on a previous post:
Under FAQ in http://services.business.vic.gov.au/...7&cat=Premises

This might be handy to know for Business Zones:

Business Zone 1: business centerer for retailing and other complementary commercial, entertainment and community uses
Business Zone 2: offices and associated commercial uses
Business Zone 3: integrated development of offices and manufacturing industries, and associated commercial and industrial uses
Business Zone 4: a mix of bulky goods retailing and manufacturing industry, and their associated business services
Business Zone 5: offices or multi-dwelling units with common access from the street

I think a visit to our account with our son and his business plan is a very good idea at this stage just so that you are all at least on the same page.

I'm sorry I couldn't provide more advice and I wish you and you're family all the very best with your future endevours..

cheers

B.D

 

[Mimoza]

Apologies for my delayed repsonse Mimoza; I've been traveling.

You've provided some great info that will be very useful when speaking with your accountant. There was also a little method to my questions as I feel it's always a good idea to think about those things before you visit a professional as it will mean your visit is both shorter (and cheaper) but is more powerful.
This area of the forum is mainly focused around commercial and given your son it most likely going to be your tenant, there probably isn't much assistance I can provide.
I will tell you however that side of the train line you reside on is the better of the two and the fact that AusPost is your neighbor is also a positive sign.
What I will also mention is to try not to confuse your son business with having free space available. Just because it's there, does not mean it is the ideal spot for his shop front and could mean the difference between sinking or swimming when he's just starting out.
Cheap (or free rent in this case) may not equate to a sensible business model so please ask him to keep this in mind when writing his business plan.

Here a couple of other post you may find interesting:
http://www.somersoft.com/forums/showthread.php?t=58689&highlight=mixed

Also, Kudo's to Willister on a previous post:
Under FAQ in http://services.business.vic.gov.au/...7&cat=Premises

This might be handy to know for Business Zones:

Business Zone 1: business centerer for retailing and other complementary commercial, entertainment and community uses
Business Zone 2: offices and associated commercial uses
Business Zone 3: integrated development of offices and manufacturing industries, and associated commercial and industrial uses
Business Zone 4: a mix of bulky goods retailing and manufacturing industry, and their associated business services
Business Zone 5: offices or multi-dwelling units with common access from the street

I think a visit to our account with our son and his business plan is a very good idea at this stage just so that you are all at least on the same page.

I'm sorry I couldn't provide more advice and I wish you and you're family all the very best with your future endevours..

cheers

B.D

Hi B.D.

Thank you for your reply, you're awesome! It didn't matter that I had to wait, I still have plenty of time before the settlement. I will follow up on the links you provided and also book a time with the accountant. Since I have some business experience, I am able to keep my son's feet on the ground and he seems to be listening sofar. The business won't be solely shop based as he is already in the process of setting up an e-bay shop which he started even before we knew about this property. So it will be a two-tiered business, dealing in different goods.

Thanks again and have a great weekend.

Mimoza

 

[Bird Dog]

You're most welcome Mimoza.

And good luck with your new premises...

B.D