Offer to buy now, or in 3 years at same price

J

jackbak

Hi all

We currently rent an office/warehouse in Keysborough VIC and we have been offered by the landlord to purchase the property for the price he paid for it 2 years ago ($450k). The office is 2 years old.

Then landlord is a friend and is pretty easy going and has told us that to help us out he will sell it to us at anytime within the next 3 years for the same price, so we can buy it today for $450k, or in 3 years for $450k, but there's more - he has also said that if the market falls he will sell it to us at market price, but if it rises he will still sell it at $450k. The rent we pay is about $7,000 p.a. above what the interest payments would be if we purchased.

In your opinions, do you think we would be better off buying it now or in 3 years? In other words, how do you think the market for commercial in S/East Melb will perform over the next 3 years?

Looking forward to hearing what you guys would do if you were in my situation!

Thanks
jackbak
 
You may be friends but it is a buisiness deal, so i would be keeping it that way. 450k seems expensive for a place that rents for 7k pa
 
BMW said:
You may be friends but it is a buisiness deal, so i would be keeping it that way. 450k seems expensive for a place that rents for 7k pa
Click to expand...

Hi BMW, thanks for the reply. Sorry if I was unclear - the rent we pay is about $7000 above what the interest payments would be. EG rent is about $37k p.a. but interest payments would be around $30k p.a (just using approx figures here). Everything is being done as a normal business deal, I just added that he was a friend in case people were wondering why he is being so easy going with us.
 
BMW said:
You may be friends but it is a buisiness deal, so i would be keeping it that way. 450k seems expensive for a place that rents for 7k pa
Click to expand...

I read it as 7kp.a above interest costs if they purchased.

I would get an independent valuation done to see what market value is.

On the face of it, it may be a good deal. Most people are conditioned to see that there are no good deals anymore, but it isn't necessarily true...

As BMW said, it's a business deal first and foremost, always remember that especially considering large sum transactions.

Have you talked to someone about whether you can get finance?
 
jackbak said:
Hi BMW, thanks for the reply. Sorry if I was unclear - the rent we pay is about $7000 above what the interest payments would be. EG rent is about $37k p.a. but interest payments would be around $30k p.a (just using approx figures here). Everything is being done as a normal business deal, I just added that he was a friend in case people were wondering why he is being so easy going with us.
Click to expand...

that makes more sense :) sloppy reading on my part
 
I say if you are looking to stay there long term, that you seriously consider it. Who knows what is going to happen in 3 years but as long as your business is comfortable in that particular building and won't outgrow it, then it is very beneficial to own your own building. Just be warned though that it can be a little bit harder to get finance to buy your own building but it's not impossible.
 
CJay said:
I read it as 7kp.a above interest costs if they purchased.

I would get an independent valuation done to see what market value is.

On the face of it, it may be a good deal. Most people are conditioned to see that there are no good deals anymore, but it isn't necessarily true...

As BMW said, it's a business deal first and foremost, always remember that especially considering large sum transactions.

Have you talked to someone about whether you can get finance?
Click to expand...

Thanks CJay, will definitely be getting a valuation done before we make the decision (obviously we are better off doing the valuation as late as possible so it is accurate for when/if we do the deal).

There are other reasons why we may purchase the property, such as needing stability for our business, but at this stage we are weighing it up solely on an investment level.

I spoke to my usual broker who said they don't do commercial and can recommend someone when the time comes.
 
Aaron_C said:
I say if you are looking to stay there long term, that you seriously consider it. Who knows what is going to happen in 3 years but as long as your business is comfortable in that particular building and won't outgrow it, then it is very beneficial to own your own building. Just be warned though that it can be a little bit harder to get finance to buy your own building but it's not impossible.
Click to expand...

Thanks Aaron, we're definitely wanting to stay long term and definitely wont be outgrowing it anytime soon so ticks all the right boxes there.

The dilemma we have is whether we should buy it now or in 3 years.

I guess we will need to speak with the accountant to see if we should be buying it in the Co name or personal name....
 
We own our own building (for the past 15+ years) and only had a 'rent increase' when it was beneficial to do so for tax reasons. I can't imagine paying rent to a landlord and having it jacked up each and every year.
 
Aaron_C said:
We own our own building (for the past 15+ years) and only had a 'rent increase' when it was beneficial to do so for tax reasons. I can't imagine paying rent to a landlord and having it jacked up each and every year.
Click to expand...

Been renting for 6 years now, previous landlord was an absolute pr!ck, jacked the rent up 25% a year, place was just about falling apart, wouldn't listen to anything we had to say, we moved out and now it's been vacant for over a year. Current landlord is really good but looking forward to being our own landlord.
 
I definitely agree. Best to buy it in a different entity completely, using a different company. There's a good reason for this ;)
 
Ok how does he wish to structure the deal Jackbak,

Is it an option to purchase, instalments, really long settlement?

If it is an option attached to the lease or some other document and correctly worded I say go for it! what have you got to lose.

if it is something else then you need to think about pro and cons
 
Last edited:
You might be saving $7,000 in what you pay in rent compared to buying, but what about the outgoings such as:
- land tax
- council rates
- insurance
- land tax
etc

Factor these in and see how the cashflow compares (maybe you pay most of them now anyway).

I agree with the SMSF - pay yourself rent and claim it too.
If not then definitely use a separate entity for asset protection and tax reasons. Make everything at arms length too - or there will be no asset protection.
 
Terry_w said:
You might be saving $7,000 in what you pay in rent compared to buying, but what about the outgoings such as:
- land tax
- council rates
- insurance
- land tax
etc

Factor these in and see how the cashflow compares (maybe you pay most of them now anyway).

I agree with the SMSF - pay yourself rent and claim it too.
If not then definitely use a separate entity for asset protection and tax reasons. Make everything at arms length too - or there will be no asset protection.
Click to expand...

Thanks Terry_w, yeah we currently pay all outgoings as part of our rent.

So is it generally better to buy the property through a separate entity - as oppose to my personal name? (I know you cant give specific advice).
 
Compropmanager said:
Ok how does he wish to structure the deal Jackbak,

Is it an option to purchase, instalments, really long settlement?

If it is an option attached to the lease or some other document and correctly worded I say go for it! what have you got to lose.

if it is something else then you need to think about pro and cons
Click to expand...

Thanks Compropmanager, haven't discussed options but I imagine he would want the funds pretty soon after we agree on a deal.
 
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