Our first CIP...step-by-step....

Thanks for the fantastic thread, Bird Dog. What strikes me is that you have thought about your leap into commercial property very thoroughly. The planning stage has been very thorough and I have little doubt that this property will turn out to be a highly successful addition to your strategy.

Regards Jason.
 
Update

So I thought I would consolidate this thread with two other questions I have asked along our journey into Comm..

The first being that the old owner wanted to stay on a little longer so how much should I charge him..?
http://www.somersoft.com/forums/showthread.php?t=71383


And the second is that it looks like we're about to receive an offer that has limitations and I wanted people's thoughts on the pro's and con's of accepting a short 2 year lease!
http://www.somersoft.com/forums/showthread.php?t=72821

Ding Ding..

B.D..
 
Update

Good morning peep's.
Thought I would pop by and update the thread on where we are currently @.

So the ink is now drying on our very first lease on our very first commercial property...WOW, what a journey it's been!
Let me first thank you all for the invaluable advice and feedback I've received along the way. I've been a member of many forums over the years however none have added to my education more than somersoft.
I won't name names but I will give particular thanks to the frequenters of the Commercial section which is as most of you know where I spend most of my time on here.

So...back to the story..
Although in an ideal world, I would have waited for the perfect 10 year lease to a govt dept, the lease offer that was presented to us on the whole wasn't too bad.
I can be a little (to use one of my wifes terms) "Nipples to the wind" and would have been happy to roll to dice and keep looking for another 10 months as we had the $$$ however for the sake of keeping my wife happy, we took the first reasonable offer that came our way. It allows us to relax a little and concentrate on growing her new business so it's a happy trade off.
But enough about us as I know I'm a really interesting person an all :p but you really want to know the numbers huh...?

So...
Final numbers are a follows.
Term: 2+1 (anticipate we'll get the three years but no more)
Yield: 8.8%
LVR: 70% (originally purchased as vacant tenancy)
Age of building: really, really old! Estimate around 1930's..
Condition: Pretty good and was even considered for food production at one stage
Tenant: Been in business 30 years. Cashed up. Govt paid them a nice sum of money to acquire their building and they are now looking at building a new premises that will house them for the next 30 years.
Bond: 3 months rent plus directors guarantee's
Notice period: 4 months.
Rental increase: 4% + market review at option
Rent free period: Zero, zip nadda, diddly squat.
Vacancy period: 10 weeks from settlement.
Outgoings: All paid by the tenants thanks..:)

Happy that I negotiated the 4 months notice period as well as getting both the bond (or "hurt money" as Dazz likes to call it) AND the director's guarantee's. Normally you get one OR the other, not both.
Also happy they are moving in this week. They wanted it ASAP and their solicitor (like they all do) needed to justify his fee and change a few words so I said "cool but we're all clear the lease has already started" and they said, "no problems."

Umm, what else..
Pretty happy that the bond will go into our loan account and offset the interest we're currently paying down on the mortgage (gotta love commercial).
Outgoings: Not only are they paying the outgoings but they even pay the PM to collect their rent each month and manage the property.

So all in all, it wasn't the easiest exercise I've ever embarked upon but it definitely wasn't the hardest either.
As I've already said, if your not happy thinking outside the box and want the comfort that residential (supposedly:rolleyes:) brings, then CIP is definitely NOT for you! If you ask any resi investor if they'd be happy to have their house sit vacant for a long period and they'll all tell you "heavens no" but there is a very real chance of this happening with commercial whether you're a novice or seasoned expert.
In the end it's a combination of education, timing and to be honest, a little sprinkling of luck. I'd much rather gamble when the odds are in my favour though than jam a coin into a machine in the false hope that today is my lucky day.
There is a little more risk involved but I guess that's like any investment. If it was so easy, every man and his dog would be doing it.
Maybe that's why so many build up their resi portfolio first before tackling the big bad world of Commercial....

Hope you all got something out of my thread and I look forward to hearing more stories of those bold enough to venture into the unknown.

All the best..

B.D...
 
Excellent work BD. A riveting read - thanks for sharing it!

I particularly like your gambling analogy. It's one I've often thought of myself - it's like going to a Casino where the odds are considerably stacked in your favour. You can still lose a lot on an individual deal and you have to be able to manage that but if you keep doing it for long enough on enough deals the odds will eventually work their magic...

As against a real Casino of course, where the opposite inevitability is true - except for the person who owns said Casino.... :rolleyes:
 
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