Opinions on my situation

[china]

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.

Your numbers are correct. Gross yield is 8.4% although I suspect that I would be happy to sell at a price with a gross yield of 9%.

The body corporate fees are very high for a very basic building because each owner also has a share of two blocks of land opposite the street from the building. The building is located on two blocks of land in itself. So each owner is essentially paying for fees for four blocks of land. The empty land is being used as a parking lot for the building.

The other tenant is indeed a pathology company who may well be increasing their rent they give me depending on how business grows. Their current offer of 18000 p.a. is just an opening gambit. So there is much potential to increase rental yield.

 

[TPI]

Your numbers are correct. Gross yield is 8.4% although I suspect that I would be happy to sell at a price with a gross yield of 9%.

The body corporate fees are very high for a very basic building because each owner also has a share of two blocks of land opposite the street from the building. The building is located on two blocks of land in itself. So each owner is essentially paying for fees for four blocks of land. The empty land is being used as a parking lot for the building.

The other tenant is indeed a pathology company who may well be increasing their rent they give me depending on how business grows. Their current offer of 18000 p.a. is just an opening gambit. So there is much potential to increase rental yield.

The net yield then is very poor for a potential buyer of this commercial investment property.

Online savings accounts give better interest rates with zero vacancy risk and zero chance of capital loss!

You are better off buying a residential investment property instead aren't you?

At least you would have long-term capital growth potential and much lower overall long-term vacancy risk.

Shares would be a better option too.

If you can find a buyer who will accept this very misleading headline partial gross 8.4% yield then you might get lucky!

Or, your property could be left on the market for months or longer before finding a buyer, slowing your wealth accumulation and retirement goals even further.

Don't be too greedy!

Also, aren't you better off sub-leasing the pathology lease under your own lease agreement with the SMSF?

That way you get the benefit of the pathology rent increases in line with your business growth, rather than the new landlord?

If you are not careful here and don't get the right advice you will end up locking yourself out of a substantial passive income stream.

Regardless, in this scenario the buyer is really only getting one tenant as if you go I suspect the pathology company would go too.

As long as the buyer doesn't hear about your early retirement plans you should be ok though!

 

[china]

The net yield then is very poor for a potential buyer of this commercial investment property.

Online savings accounts give better interest rates with zero vacancy risk and zero chance of capital loss!

You are better off buying a residential investment property instead aren't you?

At least you would have long-term capital growth potential and much lower overall long-term vacancy risk.

Shares would be a better option too.

If you can find a buyer who will accept this very misleading headline partial gross 8.4% yield then you might get lucky!

Or, your property could be left on the market for months or longer before finding a buyer, slowing your wealth accumulation and retirement goals even further.

Don't be too greedy!

Also, aren't you better off sub-leasing the pathology lease under your own lease agreement with the SMSF?

That way you get the benefit of the pathology rent increases in line with your business growth, rather than the new landlord?

If you are not careful here and don't get the right advice you will end up locking yourself out of a substantial passive income stream.

Regardless, in this scenario the buyer is really only getting one tenant as if you go I suspect the pathology company would go too.

As long as the buyer doesn't hear about your early retirement plans you should be ok though!

I suspect that I would be happy to sell in the high 400s e.g 480k. As I am likely to go in five years, I would hate to try and sell then. At that point, it would be totally tenant free and I would likely be trying to offload at a loss.

This way at 480k, (almost 10% gross yield) I have still made a nice profit on the whole project - cost base 255k + 110k fitout = 365k.

And the yield should be much more palatable for a buyer.

The reason I try to get the pathology lease direct with the SMSF is to make it more attractive for a future buyer of the project. But I take your point about locking myself out of passive income stream.

The best way really for me is to find an associate who can join me before I retire and see whether he could buy me out and take both the office and the pathology people as well. But this is a long shot given my staffing issues.

 

[DaveM]

China the difficulty will be finding a buyer willig to pay 480-550k for a $20k pa return, which is what you are asking for if you want the owner to pay the $25k of outgoings.

 

[china]

China the difficulty will be finding a buyer willig to pay 480-550k for a $20k pa return, which is what you are asking for if you want the owner to pay the $25k of outgoings.

True. The outgoings are 20k.

So my plan is if I can get the other tenant to be paying 22k a year and I am paying 28k a year, it brings the total rental to 50k a year and a net rental return of 30k.

On a 480k sale price, the 30k net return is 6.2% which makes it far more attractive.

 

[D.T.]

China the difficulty will be finding a buyer willig to pay 480-550k for a $20k pa return, which is what you are asking for if you want the owner to pay the $25k of outgoings.

20k per year on 500k.
4%... if only i could find a residential property that could achieve that

 

[TPI]

I suspect that I would be happy to sell in the high 400s e.g 480k. As I am likely to go in five years, I would hate to try and sell then. At that point, it would be totally tenant free and I would likely be trying to offload at a loss.

This way at 480k, (almost 10% gross yield) I have still made a nice profit on the whole project - cost base 255k + 110k fitout = 365k.

And the yield should be much more palatable for a buyer.

The reason I try to get the pathology lease direct with the SMSF is to make it more attractive for a future buyer of the project. But I take your point about locking myself out of passive income stream.

The best way really for me is to find an associate who can join me before I retire and see whether he could buy me out and take both the office and the pathology people as well. But this is a long shot given my staffing issues.

That's true, even if it takes you a while to sell, it's better than selling it when you leave.

May as well try and get the best price you can.

At face value it doesn't seem like a good long-term investment for you or a potential buyer, but potentially a good short-term flip.

Unless you decide you want to work longer perhaps - but as long as you have enough options on the lease to cover you that should be ok.

 

[china]

That's true, even if it takes you a while to sell, it's better than selling it when you leave.

May as well try and get the best price you can.

At face value it doesn't seem like a good long-term investment for you or a potential buyer, but potentially a good short-term flip.

Unless you decide you want to work longer perhaps - but as long as you have enough options on the lease to cover you that should be ok.

Totally agree. I was quite impressed at how you picked up that a pathology company was my other tenant. You clearly have some knowledge about these things.

I want to work only until I achieve my goals which remain:
$3m in unencumbered assets plus unencumbered PPOR in metro Sydney. Probably total net worth around $4.5mil in today's dollar values.

Not a day longer.

 

[BayView]

Totally agree. I was quite impressed at how you picked up that a pathology company was my other tenant. You clearly have some knowledge about these things.

I want to work only until I achieve my goals which remain:
$3m in unencumbered assets plus unencumbered PPOR in metro Sydney. Probably total net worth around $4.5mil in today's dollar values.

Not a day longer.

but, China - what have you got planned for your retirement to keep you occupied?

It sounds to me from your posts over recent months that you are very career minded - maybe little time for interests, hobbies? I haven't heard you mention any so far.

From my experience, folks who retire with no solid interests/hobbies etc get bored very fast and end up going back to work.

For some that is a good thing - I would do it, only to give me a day or so of activity that I enjoy and have the knowledge that I don't have to be there.

Many of the very wealthy folk I have met in my life still work well into their 70's and more - only because they like what they do and it keeps their brain engaged.

 

[china]

but, China - what have you got planned for your retirement to keep you occupied?

It sounds to me from your posts over recent months that you are very career minded - maybe little time for interests, hobbies? I haven't heard you mention any so far.

From my experience, folks who retire with no solid interests/hobbies etc get bored very fast and end up going back to work.

For some that is a good thing - I would do it, only to give me a day or so of activity that I enjoy and have the knowledge that I don't have to be there.

Many of the very wealthy folk I have met in my life still work well into their 70's and more - only because they like what they do and it keeps their brain engaged.

Great question BV.

Many people ask me what a 44 year old retiree would do and I have thought about it a lot.

My main aim is to get away from the stresses of my job and also the major stresses of staff management.

When I say retire, I mean withdraw from the need to work rabidly for cash as I currently do. A lot of people talk about working two jobs saving for a house deposit. Me, I am saving for a retirement nest egg.

I would probably aim to work two days a week but in an employee setting rather than operating my own small business. I would then act like most employees, if I don't feel like working, I won't go to work. If I don't like anything at all, I can just resign.

I would probably re-enrol in uni and do some part time studies in something entirely useless such as languages, history, philosophy -just for human interaction and pointless debate.

I would find new and more distant places to eat out at. Get into a more regular exercise routine and participate in more half marathons, which I did when I was younger.

Surf the internet, watch TV, take afternoon naps. Make sure the 3mil nest egg does not disappear.

I think there is enough to do.

 

[geoffw]

China. It's been almost a week now. How did it go with the new staff members?

 

[BayView]

I would probably re-enrol in uni and do some part time studies in something entirely useless such as languages, history, philosophy -just for human interaction and pointless debate.

That's why I come here!

And, if I don't want to talk to someone, I'm not stuck as a captured audience listening to their dribble.

Jam Uni up yer backside; full of green cardi-wearing, Ned Kelly bearded middle-aged professional students, and I'm too old and ugly to chase the co-eds.

 

[geoffw]

That's why I come here!

Jam Uni up yer backside; full of green cardi-wearing, Ned Kelly bearded middle-aged professional students, and I'm too old and ugly to chase the co-eds.

Study isn't what it once was.

I'm almost at the end of a year long diploma (it's taken about 8 months). It's been totally online. Our group project was done entirely by email- eight guys, so not even any "co eds" (not an Australian term but you've got a bit of first hand US culture).

I went to the campus this week in Melbourne just to see it. Finally got to meet a few instructors, but not many students. I'm older than most instructors anyway.

 

[westminster]

hey China.
It's been almost 6mths since the big move.
I was wondering how things were going now and if the new premises are going ok.
Are you happy with actually finally buying something?

 

[china]

hey China.
It's been almost 6mths since the big move.
I was wondering how things were going now and if the new premises are going ok.
Are you happy with actually finally buying something?

Hi Westminster

Thanks for asking. Time does fly past quickly. When I started this thread, I was certainly in a state of angst and turmoil. New staff started in January and I found it tough going in the first few weeks. A lot of things I took for granted were not done and I had to oversee many issues. Things are quite settled now. I hope they stay that way. Change and turmoil in the business has always hit me hard whenever I thought that things were under control and sailing smoothly.

There are now three part timers. So the overall wage bill has jumped by about 300 dollars per week. However, each of them on their own cost far less than the hourly rate than my departed main staff member whom I termed Mary for the purpose of this thread. I figure that I am paying for inbuilt redundancy and this should make my business safer going forward.

The two main staff members have good reason to work - each are the main breadwinners in their family. This gives me added security.

The main structural change in the staffing - as each staff member is now individually cheaper - is that at peak times, there are now two staff members working when there used to be one. They seem happy with this arrangement. Also, I find that putting them all on casual rates has also encouraged a better work ethic.

The premises are pretty good - I realise that being the owner rather than the tenant brings a lot of mental satisfaction that is not quantifiable in monetary terms. However, I suspect that being a tenant in my business before my forced move may have been monetarily better and far less hassle than running my own premises.

Going forward, I am still looking for a good IP, most likely commercial. Having said that I participated in an auction for a positively geared resi IP but missed out by about 30k.

So overall, I am far happier now than when I initiated this thread.

 

[VYBerlinaV8]

Well done China. I'm glad things are working out for you.

 

[pinkboy]

Good to hear!

pinkboy

 

[westminster]

Thanks for the up date.

To me it sounds like you might have improved your business, your staff happiness (ie 2 staff during peak times), given yourself added security of job knowledge between the 3 and all round harmony.

Did you rent out the other office? I think you had a path lab coming in?

 

[china]

Did you rent out the other office? I think you had a path lab coming in?

The path lab rental covers the strata fees so that it is cost neutral for me to be using the premises. However, it does not help the sale of premises because their tenancy is dependent on me being there.

 

[SamL]

Just stumbled across this thread, wow what a journey! Any other updates China on if you ended up holding on to the premises?