Opinions on my situation

[china]

I would be grateful for your opinions on the following scenario which is currently afflicting me.

I have just been given three months notice to vacate by my landlord with regards to my small business premises. This is actually generous as my lease has long expired. I have been present at these premises for almost five years. My landlord is actually a competitor in the same type of business. I would prefer not to divulge my exact type of business but I am a sole trader with two part time staff. The business does involve a lot of customers coming into the premise and requires face to face contact, so it must be easily accessible. Geography is important as the business is somewhat geographically dependent in terms of customer base.

Hence I am in the process of buying a new business premise in a hurry. This speed is new for me as I tend to be prone to endless paralysis analysis but I have already made a few offers on various offices 6.5km away from my current premise and will aim to exchange in the next week or two. I need to move at this speed because I do not wish to have interruptions to my business. I would aim to negotiate early settlement so that some basic fitout -computers, phone, furniture, fax, can be installed. The opportunity cost of lost business runs in several thousand per day.

I do not wish to lease again under any circumstances because the feeling of sudden eviction is awful and I do not wish to ever experience it again. And also every move in business premise is very costly in terms of business lost, loss of customers, downtime and the general inconvenience / stress.

I have made offers on two office spaces / suites within a multi-story/multi suite strata-ed building. The 80m space is just enough for me at present for one staff and myself. The 170m space which is just two doors down is far more comfortable and will allow me to bring in a business associate down the track if required. I have made offers based on a cost of about $4500 per square meter.- approx 360k- 400k for the first and max 800k for the second. This reflects sales in the past 12 months. Strata fee is about $7000 for the first space and $15000 for the second space. The building is about seven years old and has a reasonably low vacancy rate. When the building was first built, the sales were about $6000 per sqm.

Currently, the 80sqm property is listed also listed for rent at 35000 p.a. and the 170sqm property has tenants on expired leases at 9% gross yield. Both have reasonable fitouts so that I do not have to do anything major. I would need to install wash basins into either suites. I would need to buy new computers / phones / faxes / printers / scanners -the relocation cost will come to about 100k minimum.

Since I received eviction notice three days ago, I have asked the accountant to set up SMSF. I want to buy using SMSF because I will be using the premises for my business.

I have 150k in first state super. This will take time to transfer into SMSF. Once the SMSF account is set up, I can add 25k concessional contribution this year and 450k non-concessional contribution.

If I buy the 400k property, the SMSF should cover it. If I buy the 800k property, the SMSF will need to lend from me. I will put the balance of approx 200k into smsf account from my online saver account.

I am awaiting an acceptance by a vendor on either property and will proceed. They talk about distressed sellers but I am a distressed buyer - forced to buy! But I have not told agent about this obviously!

Under other circumstances, I would not buy this office suite as I do not believe that they are good investments.

I have organised a conveyancer locally who has given me a quotation of 1700k for her fees plus disbursements. They will do strata report.

I would be grateful for any pitfalls / issues /insights into the above situation and how I can minimise damage to my financial position.

 

[westminster]

Is that the only 2 options in your area?

Is there a possibility to get something much larger like your original plan and lease part to yourself and the rest medical etc? Or is your geographic location not the area you want to invest in?

At the end of the day this might be the kick up the bum you need to make a decision and you know your business needs best. I would probably go for the larger to give yourself growth opportunities.

If you buy something already tenanted how much notice do you need to give them to move out?

 

[DaveM]

6.5km is a fair distance for customers to visit their medical professional. As above are there no closer options?

You have 3 months notice, I would not be rushing out in the first day and offering on suites while your head is still spinning a bit from the eviction.

If it was me I would spend a couple of weeks looking at your immediate area, getting your SMSF set up with the option to borrow in it if the cash you would transfer in would be otherwise better used for your personal investment you have been considering.

Try to find a suite that suits and is vacant and then either do a short settlement or negotiate a lease option on it for the settlement period.

Also if the suites you have offered on are already fitted out with little to do, why is it going to cost you 100k to relocate? I recently relocated a physio who did a full fitout inc new computers, multi function, pabx, walls and beds etc for about 35k.

Lastly, buy more space than you need. It is far easier to not use excess space (or sublet it to a complementary profession) than find ways to get space you dont have. I moved my business 12 months ago, I was looking around the 90sqm mark initially but ended up with 143sqm which is now feeling small with staff changes and additions.

 

[china]

Is that the only 2 options in your area?

Is there a possibility to get something much larger like your original plan and lease part to yourself and the rest medical etc? Or is your geographic location not the area you want to invest in?

At the end of the day this might be the kick up the bum you need to make a decision and you know your business needs best. I would probably go for the larger to give yourself growth opportunities.

If you buy something already tenanted how much notice do you need to give them to move out?

I am really glad that I have been following this forum for two years because I actually feel much more confident in this property crisis!

The geographic region where my business currently is based is not a good area to invest.

To answer your question about options, I don't think that there is a realistic third option given the time constraints of three months.

I did consider is a third option beyond the two office spaces 6.5km away but it is a distant third. About 200m down the road from where I am being evicted, there is a three story building which has been vacant for about six months. The commonwealth bank moved out from there about six months ago after having been there for fifteen years. The ground floor is selling for two mil, first floor for one one mil and the top floor one mil. One person owns the whole building and it is not yet strata titled.

I considered this but have dismissed it due to the time constraints of my situation and the following reasons.

1 .due to the high capital cost
2. no tenancy - hard to find tenants
2. likely strata fee of 45k p.a. for the first and top floor individually
3. i need council approval to zone it for my business purposes - this would involve town planner for 5k and could take six weeks with no guarantees of success
4. Fitout would cost about 150k - i would need to project manage a fit out team
5. The building is about fifty years old with the previous refurbishment about 15 years ago when the CBA moved in -so the lift access to the first and middle floor is in an antiquated lift and somewhat dark.
6. The ground floor is way beyond my budget but in the longer term may have limited potential for resale and leasing
Each floor is about 700sqm when I can only use max of 200sqm. It is possible to subdivide each floor but finding tenants is difficult in this region. Many first floor office spaces along this street are vacant. They tend to be old buildings with no lift access and hence unsuitable for me. Hence I need to move to the next closest business hub which is 6.5km with regards to the two office spaces mentioned in the original post.

I flirted with this option as the building is one of the more prominent in the area and there are good signage opportunities that would allow my business a greater presence in the region.

So at the moment I am hoping that the owner of the larger office space accepts my offer and I am told that at least some tenants can move out within the next three months so that I can move in.

 

[pinkboy]

I have organised a conveyancer locally who has given me a quotation of 1700k for her fees plus disbursements. They will do strata report.

Im in the wrong game!

pinkboy

 

[china]

6.5km is a fair distance for customers to visit their medical professional. As above are there no closer options?

You have 3 months notice, I would not be rushing out in the first day and offering on suites while your head is still spinning a bit from the eviction.

If it was me I would spend a couple of weeks looking at your immediate area, getting your SMSF set up with the option to borrow in it if the cash you would transfer in would be otherwise better used for your personal investment you have been considering.

Try to find a suite that suits and is vacant and then either do a short settlement or negotiate a lease option on it for the settlement period.

Also if the suites you have offered on are already fitted out with little to do, why is it going to cost you 100k to relocate? I recently relocated a physio who did a full fitout inc new computers, multi function, pabx, walls and beds etc for about 35k.

Lastly, buy more space than you need. It is far easier to not use excess space (or sublet it to a complementary profession) than find ways to get space you dont have. I moved my business 12 months ago, I was looking around the 90sqm mark initially but ended up with 143sqm which is now feeling small with staff changes and additions.

Thanks Dave. One of the benefits of joining this forum is that it has meant that I have been surveying the area for some time on realcommercial.com.au. after having joined this forum two years ago. I would prefer not to move 6.5km but feel that there is no realistic option closer by in terms of time frame. The 6.5km will certainly cause loss of customers.

Whilst the two suites are reasonably well done currently ,the 100k is based on quotes for removalists / new flooring / re-partitioning/ install wash basins / kitchenette/ computers /phones/ chairs /desk /fax / beds / business cards /letter heads / etc. etc. The fitout process probably takes about eight weeks from contacting builder to completion ready to move in and hence this would also cause me stress if my business cannot continue.

In my region, most people in my business operate out of old houses that have been redesigned or knocked down and rebuilt. But this is a two year process after purchasing the old house and land and is not a realistic option for me right now.

 

[china]

Im in the wrong game!

pinkboy

I got various quotes for commercial conveyancing and the cheapest was 1300k from an online mob. I am going to go with the conveyancer that did my PPOR some years ago and I can visit in my area.

 

[see_change]

Hi china

Sorry to here that .

Things to think about .

First thing , depending on your business and the locality , 6.5 k could be a reasonable distance , also depends on how your current clients get there , walk , public transport , drive etc .

It's also a chance to look at different options , other than continue with what you're doing in terms of your current business model . Sounds like you have a reasonable amount of money saved up and while at the moment you're obviously anxious about ensuring continuity of income , a week of considering alternatives / thinking outside the box might be worthwhile.

For example , at the moment you're a sole trader so your income is dependant on your personal effort . Depending on the circumstances , this can mean it is difficult in terms of holidays , sickness etc .

Could you consider a larger premesis , or even buy an existing business with a long term lease . Could you buy a residential building that can be used for a commercial purpose ? Rather than just being a sole trader could you run a business.? Some people don't have the personal skills to do this and if you don't trying to do that could be an expensive mistake as some forumites have found out .

Another thought . Are you geographically where you want to be ? I spent years working out west whereas I live on the north shore . Personally i didnt want to work close to where i lived but in reality i should have moved earlier but inertia can be hard to overcomes when things are going ok .

Something's to think about .

Cliff

 

[DaveM]

China another option is to negotiate with your current landlord for a 4-6 month relocation instead of 3 months, take some pressure off.

 

[Aaron_C]

China - why not make offers on places in the same suburb as you now? You can obviously afford it.

 

[Terry_w]

I would be grateful for your opinions on the following scenario which is currently afflicting me.

I have just been given three months notice to vacate by my landlord with regards to my small business premises. This is actually generous as my lease has long expired. I have been present at these premises for almost five years. My landlord is actually a competitor in the same type of business. I would prefer not to divulge my exact type of business but I am a sole trader with two part time staff. The business does involve a lot of customers coming into the premise and requires face to face contact, so it must be easily accessible. Geography is important as the business is somewhat geographically dependent in terms of customer base.

Hence I am in the process of buying a new business premise in a hurry. This speed is new for me as I tend to be prone to endless paralysis analysis but I have already made a few offers on various offices 6.5km away from my current premise and will aim to exchange in the next week or two. I need to move at this speed because I do not wish to have interruptions to my business. I would aim to negotiate early settlement so that some basic fitout -computers, phone, furniture, fax, can be installed. The opportunity cost of lost business runs in several thousand per day.

I do not wish to lease again under any circumstances because the feeling of sudden eviction is awful and I do not wish to ever experience it again. And also every move in business premise is very costly in terms of business lost, loss of customers, downtime and the general inconvenience / stress.

I have made offers on two office spaces / suites within a multi-story/multi suite strata-ed building. The 80m space is just enough for me at present for one staff and myself. The 170m space which is just two doors down is far more comfortable and will allow me to bring in a business associate down the track if required. I have made offers based on a cost of about $4500 per square meter.- approx 360k- 400k for the first and max 800k for the second. This reflects sales in the past 12 months. Strata fee is about $7000 for the first space and $15000 for the second space. The building is about seven years old and has a reasonably low vacancy rate. When the building was first built, the sales were about $6000 per sqm.

Currently, the 80sqm property is listed also listed for rent at 35000 p.a. and the 170sqm property has tenants on expired leases at 9% gross yield. Both have reasonable fitouts so that I do not have to do anything major. I would need to install wash basins into either suites. I would need to buy new computers / phones / faxes / printers / scanners -the relocation cost will come to about 100k minimum.

Since I received eviction notice three days ago, I have asked the accountant to set up SMSF. I want to buy using SMSF because I will be using the premises for my business.

I have 150k in first state super. This will take time to transfer into SMSF. Once the SMSF account is set up, I can add 25k concessional contribution this year and 450k non-concessional contribution.

If I buy the 400k property, the SMSF should cover it. If I buy the 800k property, the SMSF will need to lend from me. I will put the balance of approx 200k into smsf account from my online saver account.

I am awaiting an acceptance by a vendor on either property and will proceed. They talk about distressed sellers but I am a distressed buyer - forced to buy! But I have not told agent about this obviously!

Under other circumstances, I would not buy this office suite as I do not believe that they are good investments.

I have organised a conveyancer locally who has given me a quotation of 1700k for her fees plus disbursements. They will do strata report.

I would be grateful for any pitfalls / issues /insights into the above situation and how I can minimise damage to my financial position.

Gee...Many potential issues

You are using a conveyancer for 1 thing. You should seek legal advice on related issues. You will need a commercial contract between the SMSF and tenant. What about succession issues of your smsf. Asset protection issues. Deductibility of interest issues.

Next is timing. Transfers of super takes time.
You can't just transfer money from a savings account to super - is this a loan or a contribution? If loan commercial terms? what rate what security - can you find a lender willing to allow you to do this and still lend you? - I just noticed you intend for your fund to pay cash - since funds cannot increase loans is this a good idea? what about a IO loan with a 100% offset account. THis way you will have a loan if you need it, but can store cash in the offset so you incur no interest.

Take this opportunity to restructure your business as well. A sole trader with 2 staff does not sound very nice or safe.

Where is your discretionary trust in all this?

 

[china]

China another option is to negotiate with your current landlord for a 4-6 month relocation instead of 3 months, take some pressure off.

Unfortunately, personal animosity has led to this situation so no negotiation is possible. I have exactly 3 months to the exact day to be gone.

 

[china]

China - why not make offers on places in the same suburb as you now? You can obviously afford it.

Thats the problem - there is nothing that I can move into in my own suburb within the 3 month period. To get council approval for rezoning for the purpose of my specific business takes about six weeks and then in my current suburb, the one suitable property requires extensive fit out which can also take about six to eight weeks. This is all assuming that I can settle on the property. Hence, I am being forced to buy something 6.5km away.

 

[china]

Hi china

Sorry to here that .

Things to think about .

First thing , depending on your business and the locality , 6.5 k could be a reasonable distance , also depends on how your current clients get there , walk , public transport , drive etc

Most of my clients arrive by personal motor vehicle but many are frail and elderly and 6.5km could be an issue

It's also a chance to look at different options , other than continue with what you're doing in terms of your current business model . Sounds like you have a reasonable amount of money saved up and while at the moment you're obviously anxious about ensuring continuity of income , a week of considering alternatives / thinking outside the box might be worthwhile.

For example , at the moment you're a sole trader so your income is dependant on your personal effort . Depending on the circumstances , this can mean it is difficult in terms of holidays , sickness etc .

Could you consider a larger premesis , or even buy an existing business with a long term lease . Could you buy a residential building that can be used for a commercial purpose ? Rather than just being a sole trader could you run a business.? Some people don't have the personal skills to do this and if you don't trying to do that could be an expensive mistake as some forumites have found out .

Unfortunately my business / income is a personal buisness services/income so it is not really an option to purchase a business. The income is directly related to my efforts. I could convert a house to a business premise but this usually takes two years from go to turn key.

Another thought . Are you geographically where you want to be ? I spent years working out west whereas I live on the north shore . Personally i didnt want to work close to where i lived but in reality i should have moved earlier but inertia can be hard to overcomes when things are going ok .

Something's to think about .

Cliff

With regards to the last point, I have to be geographically fixed due to contractual obligations as a subcontractor to a particular government organisation. This means that I must stay within a certain radius of where I am.

 

[Waldo]

Under other circumstances, I would not buy this office suite as I do not believe that they are good investments.

Hi, I know you have specified that leasing is not an options. However if you are concerned that the offices you are looking to buy are not investment grade properties I would be very hesitant to proceed (especially with such a short time frame to secure a new place). $1mil is a lot of money to be tied up in an investment that may not perform.

Would you consider leasing another place? This may have the benefit of being able to stay close to you're existing premises. Obviously you would want to ensure that you have a good lease in place (say set yourself up with a 5+5 or something that will secure the place for you far into the future) - this would help prevent a situation where you are in of having to move rapidly. It would also give you potentially more flexibility if you did decide you needed more/less space for your business.

If you definately will not consider another leased place that is fine - just something to think about maybe!

 

[china]

Gee...Many potential issues

You are using a conveyancer for 1 thing. You should seek legal advice on related issues. You will need a commercial contract between the SMSF and tenant. What about succession issues of your smsf. Asset protection issues. Deductibility of interest issues.

Next is timing. Transfers of super takes time.
You can't just transfer money from a savings account to super - is this a loan or a contribution? If loan commercial terms? what rate what security - can you find a lender willing to allow you to do this and still lend you? - I just noticed you intend for your fund to pay cash - since funds cannot increase loans is this a good idea? what about a IO loan with a 100% offset account. THis way you will have a loan if you need it, but can store cash in the offset so you incur no interest.

Take this opportunity to restructure your business as well. A sole trader with 2 staff does not sound very nice or safe.

Where is your discretionary trust in all this?

Thanks Terryw. My accountant seems oblivious to all of the above. He tells me that he will set up the smsf with a bare trust to hold the property and set up a company to be the trustee of the trust.

The tenant will be myself.

With regards to funding of the smsf, I can make 450k non-concessional contribution and 25k of concessional contribution this year. Coupled with 150k in first state super, this may be enough to pay for the property. If the property costs more, my accountant has advised that I loan funds to the smsf rather than lending from a bank. He said that my cash is not doing anything beyond sitting in term deposit and if I lend cash to my smsf, I will save on bank fees, bureaucracy and can charge my smsf at lower rates than a commercial lender.

 

[HD_ACE]

Why are you being removed?

Is it possible to renegotiate a lease or get an extra 3-6-12 months ontop so you can sort it all out rationally and sensibly?

May cost you a bit more in rent but probably save you a hell of alot more in the long term by rushing out to buy something half suitable to your needs.

Cheers

 

[westminster]

I wish we could help more but I respect your privacy for your business.

Have you talked to any commercial REAs in your area to see if there is anything not currently listed (ie taken off market as didn't sell) or about to come on market?

 

[Terry_w]

Thanks Terryw. My accountant seems oblivious to all of the above. He tells me that he will set up the smsf with a bare trust to hold the property and set up a company to be the trustee of the trust.

The tenant will be myself.

With regards to funding of the smsf, I can make 450k non-concessional contribution and 25k of concessional contribution this year. Coupled with 150k in first state super, this may be enough to pay for the property. If the property costs more, my accountant has advised that I loan funds to the smsf rather than lending from a bank. He said that my cash is not doing anything beyond sitting in term deposit and if I lend cash to my smsf, I will save on bank fees, bureaucracy and can charge my smsf at lower rates than a commercial lender.

I sense danger!

If the tenant is yourself you will still have to enter into a written contract with the trustee of the SMSF. Failure to do this would be a breach of the SIS act as a member is not allowed to benefit from SMSF assets. Also for tax reasons you would want a written contract. You need legal advice on this.

Also doesn't make sense that you are talking about making a contribution on the one hand but lending your SMSF money on the other. If lending you would need to consider SIS Act issues and also Tax Act issues such as deductibility of interest. Also written agreement needed.

 

[DaveM]

China not sure how high risk your profession is, but as it appears to be medical, you would really benefit from a sit down with a good lawyer to look at trusts and asset protection, especially as a sole trader with your cash and PPOR on the line.

Terry would be a good person to start this process with.