Opinions on my situation

[geoffw]

I thought my comm property should count as an IP ?

In 2014, my project will be sell the comm investment property if I can get an appropriate price.

That was an act of necessity-you wouldn't have bought it if you hadn't run out of your lease, and now you want to sell out ASAP.

You've been wanting 8%+ returns, long leases, good growth and good strong tenants. Properties like that are extremely rare.

I've heard it said- "Good returns, strong growth, safety- pick any two". I think you want all three. The comm property you've got, you miss out on the growth- you have one tenant who is unlikely to skip out on you.

A resi property typically offers growth and safety (although sometimes not even these). IMO you're better off with a well chosen property in a strong demand area with returns a little less than bank interest loans. Some would recommend a positively geared property, possibly foregoing some growth or safety- but you still wouldn't get 8%.

 

[china]

That was an act of necessity-you wouldn't have bought it if you hadn't run out of your lease, and now you want to sell out ASAP.

You've been wanting 8%+ returns, long leases, good growth and good strong tenants. Properties like that are extremely rare.

I've heard it said- "Good returns, strong growth, safety- pick any two". I think you want all three. The comm property you've got, you miss out on the growth- you have one tenant who is unlikely to skip out on you.

A resi property typically offers growth and safety (although sometimes not even these). IMO you're better off with a well chosen property in a strong demand area with returns a little less than bank interest loans. Some would recommend a positively geared property, possibly foregoing some growth or safety- but you still wouldn't get 8%.

The problem with my tenancy is that it relies on me continuing to work. Hence, it conflicts with my number one goal of trying to get out. With a big nest egg, I am free. And I could use the nest egg to fund some investments which would create a passive income that allows me to be free of work - that is the ultimate end game.

Of the three features you have mentioned are desirable in an IP, I thought that good growth is by far the most important.

 

[china]

A little ray of sunshine came into my current gloom. A well established local commercial real estate agent has said that he would be interested in listing my comm property for $550k. This was calculated working backwards on an 8.4% yield from rent.

I paid $255k (including stamps and legals) only four months ago and spent 110k on fitout. I should be able to get some depreciation on the fitout.

If he pulls this off, it will be one small step for the agent and a giant leap for me towards retirement.

 

[Terry_w]

A little ray of sunshine came into my current gloom. A well established local commercial real estate agent has said that he would be interested in listing my comm property for $550k. This was calculated working backwards on an 8.4% yield from rent.

I paid $255k (including stamps and legals) only four months ago and spent 110k on fitout. I should be able to get some depreciation on the fitout.

If he pulls this off, it will be one small step for the agent and a giant leap for me towards retirement.

It won't hurt to list it and see how it goes. If it sells for near then amount then it would be time to get out I think.

 

[geoffw]

I think that the fitout belongs to you as the tenant, not the building owner.

Now it's even more important to get that SMSF stuff set up correctly. You'll lose half of your capital gain in tax if you haven't got it set up correctly and you get taxed in your own name.

But really, I'm not sure why you came onto the forum seeking investment advice, when you have something land on your lap giving returns most people here dream about- and you want to offload it ASAP.

 

[Terry_w]

I think that the fitout belongs to you as the tenant, not the building owner.

This depends... It is usually negotiated by the parties beforehand. Sometimes the landlord owns the fit out as it may have been provided as an incentive. Whoever owns it it should be well documented in the lease and/or other agreement. Best to put a personal property security act charge too as if one party becomes insolvent then the other party's fitout could be taken.

But in the case of China, nothing is documented and things seem rather messy. Not a commercial transaction at this point I think.

 

[geoffw]

This depends... It is usually negotiated by the parties beforehand.

But that would involve some planning, financial and legal advice.

 

[wylie]

But that would involve some planning, financial and legal advice.

China. You've got Terry, Geoff and others giving you excellent advice, and I just don't understand why you seem reluctant to pay a solicitor for the sort of specialist advice you need to get this all sorted out. Wouldn't it be a good idea to have Terry look at your situation? He knows so much already, that you'd save some time in the initial brief . You have spent a lot of money setting up this practice, but the fundamentals seem to be very messy, and you sound like you are not concerned enough to be concerned (if that makes sense).

You sound very much like you may already be in breach of some superannuation and trust laws but are nitpicking over paying a good solicitor a few thousand to make sure you are not bent over by the taxman.

If that happens, it will make the Mary situation look like a cakewalk.

 

[DaveM]

Next thread

Opinions on audit crisis in self managed super fund

 

[TPI]

A little ray of sunshine came into my current gloom. A well established local commercial real estate agent has said that he would be interested in listing my comm property for $550k. This was calculated working backwards on an 8.4% yield from rent.

I paid $255k (including stamps and legals) only four months ago and spent 110k on fitout. I should be able to get some depreciation on the fitout.

If he pulls this off, it will be one small step for the agent and a giant leap for me towards retirement.

Hi china,

What is the rent/sqm of comparable vacant office space in the area, or in your block?

How big is your floor space in sqm?

What are the body corporate fees?

Who will pay the body corporate fees, you (ie. the tenant) or the new landlord?

What sort of lease are you going to sign (/should have already signed with your SMSF), ie. 3x3, 5x5x5 etc.?

How are other outgoings like land tax and landlord's property management fees treated - ie. who pays them?

Will the property come under the Retail Leases Act in your state?

Are you familiar with this Act?

Also, if the lease hasn't been done yet, how does the agent come to this valuation?

Also note that agents can try and "buy the listing" by suggesting to you a high potential sale price.

 

[TPI]

China. You've got Terry, Geoff and others giving you excellent advice, and I just don't understand why you seem reluctant to pay a solicitor for the sort of specialist advice you need to get this all sorted out. Wouldn't it be a good idea to have Terry look at your situation? He knows so much already, that you'd save some time in the initial brief . You have spent a lot of money setting up this practice, but the fundamentals seem to be very messy, and you sound like you are not concerned enough to be concerned (if that makes sense).

You sound very much like you may already be in breach of some superannuation and trust laws but are nitpicking over paying a good solicitor a few thousand to make sure you are not bent over by the taxman.

If that happens, it will make the Mary situation look like a cakewalk.

I think he is very concerned, but at the same time is also very reluctant to part easily with his hard earned money.

That being said, some things are definitely worth paying for.

You don't want to inadvertently breach the SIS Act.

 

[wylie]

I'm a bit confused about why someone would pay such a high price when you've consistently said there has been little growth in this area for this type of set up?

I also think you need to lock in your lease or you may find yourself on the street again if the new owner doesn't want to keep you.

Also, why wouldn't your new premises be attractive to another specialist when you retire? Couldn't you "sell" your business/clients to another similar specialist who would be happy that you've done the fit out that could suit them too?

 

[china]

Hi china,

What is the rent/sqm of comparable vacant office space in the area, or in your block?

How big is your floor space in sqm?

What are the body corporate fees?

Who will pay the body corporate fees, you (ie. the tenant) or the new landlord?

What sort of lease are you going to sign (/should have already signed with your SMSF), ie. 3x3, 5x5x5 etc.?

How are other outgoings like land tax and landlord's property management fees treated - ie. who pays them?

Will the property come under the Retail Leases Act in your state?

Are you familiar with this Act?

Also, if the lease hasn't been done yet, how does the agent come to this valuation?

Also note that agents can try and "buy the listing" by suggesting to you a high potential sale price.

It is hard to determine rental rate in my block of seven owners. Almost all are owner occupied like me via their SMSF. However, one group seems to be renting at 310/sqm.

I am offering rental at 368/sqm. My suite is 125 sqm plus three car spaces plus separate 15sqm storage room.

The body corp fees / council rates together come to about 20k per year. I am hopeful the buyer can pay these. I should pay the other usual outgoings.

The lease will be a 5 plus 5 from me and possibly a 3 plus 3 from an ASX listed tenant. So there will be two separate leases for new owner to inherit.

I have not heard of the retail leases Act.

The agent has come to this valuation based on two things.

1. He has been asked to list another suite in the same building. This other suite is 160sqm with a rental yield of 310/sqm.

2. I have told him about the return return. Tenant 1 which is me is about to draw up a lease with a solicitor. Tenant 2 has drawn up a lease which my SMSF needs to sign off on. So I can reliably tell the agent the exact rental yield amount.

 

[china]

I'm a bit confused about why someone would pay such a high price when you've consistently said there has been little growth in this area for this type of set up?

I also think you need to lock in your lease or you may find yourself on the street again if the new owner doesn't want to keep you.

Also, why wouldn't your new premises be attractive to another specialist when you retire? Couldn't you "sell" your business/clients to another similar specialist who would be happy that you've done the fit out that could suit them too?

My agent says that we need to find entry level / new investors who wish to take advantage of the low and dropping interest rates and wish to get an 8 plus per cent return on investment in the 500k category. He tells me that there will be investors who do not know how to conduct proper due diligence.

I will be speaking to the solicitor to make sure that the lease gets drawn up so that I do not get evicted. I am thinking 5 plus 5 but there is a high chance I should be able to retire by 5.

It is hard to find a buyer - if it wasn't then the property should have appreciated rather than depreciated over its 33 year history.

 

[china]

I think he is very concerned, but at the same time is also very reluctant to part easily with his hard earned money.

That being said, some things are definitely worth paying for.

You don't want to inadvertently breach the SIS Act.

I take on board what Geoff and Terry are saying and will be sourcing a good local SMSF solicitor ASAP. I thought I had found a prominent local solicitor to do the lease but after reading these threads realise that he is too much of a generalist solicitor and probably does not know too much about SIS.

 

[china]

It won't hurt to list it and see how it goes. If it sells for near then amount then it would be time to get out I think.

Thats my thought exactly. Because the worst time to sell is when I want to depart and suddenly it is a tenant free sale with time pressures.

 

[wylie]

My agent says that we need to find entry level / new investors who wish to take advantage of the low and dropping interest rates and wish to get an 8 plus per cent return on investment in the 500k category. He tells me that there will be investors who do not know how to conduct proper due diligence.

That paragraph right there is scary. To me it reads "let's find a mum and dad investor who doesn't know they are being fleeced".

Does that comment from your agent sit well with you? You are going to be relying on these buyers, lease or not, who might learn too late that they didn't do their due diligence, and you are going to be relying on them as your landlord (lease or not) and things could get awkward if the agent tries to pull the wool over their eyes.

 

[china]

That paragraph right there is scary. To me it reads "let's find a mum and dad investor who doesn't know they are being fleeced".

Does that comment from your agent sit well with you? You are going to be relying on these buyers, lease or not, who might learn too late that they didn't do their due diligence, and you are going to be relying on them as your landlord (lease or not) and things could get awkward if the agent tries to pull the wool over their eyes.

I guess the agent is a professional in his own right. And all investments carry risks. Is it not a case of caveat emptor?

And I guess whilst I am a tenant there, the investor should not be displeased - they are getting a great return. And also security of tenancy from both myself and an ASX listed tenant.

Furthermore , the 8% return is with only approximately 60% of the space being used. There is potential for someone who knows what they are doing to increase the returns even further by letting out the remaining space.

 

[china]

And I think there are far more dodgy property investments out there. Here I am trying to sell a property with secure tenants and a 8 plus per cent return. Sure, there is a vacancy risk after the lease expires but this goes with all investment properties.

 

[TPI]

It is hard to determine rental rate in my block of seven owners. Almost all are owner occupied like me via their SMSF. However, one group seems to be renting at 310/sqm.

I am offering rental at 368/sqm. My suite is 125 sqm plus three car spaces plus separate 15sqm storage room.

The body corp fees / council rates together come to about 20k per year. I am hopeful the buyer can pay these. I should pay the other usual outgoings.

The lease will be a 5 plus 5 from me and possibly a 3 plus 3 from an ASX listed tenant. So there will be two separate leases for new owner to inherit.

I have not heard of the retail leases Act.

The agent has come to this valuation based on two things.

1. He has been asked to list another suite in the same building. This other suite is 160sqm with a rental yield of 310/sqm.

2. I have told him about the return return. Tenant 1 which is me is about to draw up a lease with a solicitor. Tenant 2 has drawn up a lease which my SMSF needs to sign off on. So I can reliably tell the agent the exact rental yield amount.

So is the total rent of the space with both tenants in place $46,200 (ie. 8.4% x $550,000)?

And the net rent a new landlord would then receive would be $46,200 - $20,000 body corporate fees - council rates - PM fees - land tax = less than $26,200?

So less than 4.76% net yield?

Possibly less than 3% net yield after all landlord outgoings are included?

And with a rent/sqm that maybe up to 19% above market (depending on how you value the extra car/storage space)?

btw Those body corporate fees seem ridiculous for a 7 owner block - what are you paying for here?!

Also, is the other tenant a pathology company?

The spare floor space and medical tenancy does work in your favour as a selling point though, unless both leave at the same time.