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

The main flaw I find in agents is that they sometimes take the path of least resistance to get it over the line. It’s not hard to negotiate the tenants not paying the management fees and other outgoings if you never point it out to the landlord or state to the landlord that it is not common place so as to not have to bring it up.

I had heard from other sources about the tenant paying the management fee's so I'll definitely bring it up when we're announcing our expectations of the future tenant..

We had another interesting day with the bank which I won't go into but needless to say we're now well into a foxtrot and definitely earning our stripes on the dance floor..

Will keep you posted...
 
Here's some of what I learnt today about commercial lending...

Lesson # 1: Traditional Resi loans are normally subject to a cookie cutter template that is simply populated with the relevant data which then spits out a "yes".."no" or "refer".
Yes and no are pretty much self explanatory but refer means it then gets sent to anther dept for review. The "refer" dept hasn't been overly generous of late and seems to be knocking things back quite often.

Lesson # 2: Comm lending on the other hand has a more flexible approach and the banker can "tinker" with the application a little more. Specifically, they can add a little more "opinion" to the app to make it more appealing.
Whilst this can assist with getting your ideal LVR (typically 70% at present for comm) unfortunately this can all be negated when a lower valuation comes in which puts you back to square 1 again....:mad:

Lesson # 3: When a valuer values an untenanted property, it can be difficult to set a $$$ amount as typically in comm, the lease is the value. So he/she will factor in a likely vacancy period of somewhere between 3-6 months (sometimes more depending on the area) which of course lowers the end value. Keep this in mind when purchasing vacant property.

Lesson # 4: This was told to me by a banker so take it with a grain of salt (hopefully a comm broker on here can clarify) but I was told that your establishment fee's can be much higher when going through a broker as the fee's they normally get from settling a resi loan are not paid and so he/she must pass on these fees to the borrower.
If anyone can answer this question either way, I would be most appreciative.

Lesson # 5: If you only ever play by the rules and can't stomach having to get creative with things... commercial is not for you! The only solid rule I'm finding in commercial is that the rules change by the minute so make sure you have your wits about you and can think laterally otherwise you'll be sunk by the first torpedo fired in your direction.

So... tomorrow is a new day and I look forward to the next challenge...:D
 
Also spoke to a potential agent yesterday (one of those previously mentioned) to lease and manage the place. He seemed conservative in his estimates which was refreshing. Nice to see he wasn't overestimating to win the business..
I mentioned about the tenant paying the management fee's and he said that was very rare.. anyone else wish to comment..?

Highly unusual but it may a rare occurance in the area that you are buying.

If you like the agent but not the comment, simply have the agent fix their fees for the term of the lease ( their fees - not your contract) and incorporate it into the rental payable.

But advise the agent that any negotiations in bring the rental figure down will result in a reduction of their fees.

You are in charge here and show them who is the boss.

Good luck.
 
well seems to me chilliblue and I share the same frustration with some commercial agents not doing there damn job. what a solution as well, I can hear the conditioning already "because we are charging that fee we can't get a tenant" but chilliblue just knocked that out of the park:cool:
 
Highly unusual but it may a rare occurance in the area that you are buying.

If you like the agent but not the comment, simply have the agent fix their fees for the term of the lease ( their fees - not your contract) and incorporate it into the rental payable.

But advise the agent that any negotiations in bring the rental figure down will result in a reduction of their fees.

You are in charge here and show them who is the boss.

Good luck.

I like your reasoning on that one Chilli. Head it off at the pass and let them deal with it.
The cynic in me feels the agent won't want to put any extra terms onto the tenant that could jeopardize the deal so they say no to passing on the fees to start with.
I will take your advice and let them know what the terms are from the start.
Besides, the tenant will only be aware of such terms when they make an offer and then read the lease (do I have this right) which then becomes a point of negotiation. Better to have it in there first and then potentially take it out if need be rather then it never being mentioned!
 
May I suggest that you take some time with your solicitor (or even the agent first then the solicitor) and create a pro forma lease with all the terms and conditions that you require.

Rather than use the standard commercial lease for your state, alter it by adding those terms that you want and are legally allowed to add. Examples are:

1. If you do agree to an option, then the lessee must issue 12 months written notice of their intention not to take up said option. This way, if they miss the deadline, then they have agreed to an additional term.

2. Refurbishments of premises every 5 years or the last year of the term (lengths dependant on type of tenant). Works to new carpet, new paint, new signage etc.

3. Detail what make good requirements are required at the end of the lease.

4. Bank guarantee/security deposit to be increased to 12 months gross rent if lessee is in default of the lease, on expired tenancy, lease assigned etc.

And the list goes on.

By having a legal lease that you are comfortable with will define the agents area of movement when negotiating a lease and should be issued to the prospective lessee along with their Heads of Agreement (proposed offer).

This way when the lessee signs off in the HoA that they have read and agreed to the pro forma lease, any legal costs associated with changing said document in additional to what has been proposed must be payable by the tenant.

I hopes this helps. It sounds daunting but it really isn't.
Do not forget tp take a minimum one months gross rent non refundable if they pull out.
 
May I suggest that you take some time with your solicitor (or even the agent first then the solicitor) and create a pro forma lease with all the terms and conditions that you require.

Rather than use the standard commercial lease for your state, alter it by adding those terms that you want and are legally allowed to add. Examples are:

1. If you do agree to an option, then the lessee must issue 12 months written notice of their intention not to take up said option. This way, if they miss the deadline, then they have agreed to an additional term.

2. Refurbishments of premises every 5 years or the last year of the term (lengths dependent on type of tenant). Works to new carpet, new paint, new signage etc.

3. Detail what make good requirements are required at the end of the lease.

4. Bank guarantee/security deposit to be increased to 12 months gross rent if lessee is in default of the lease, on expired tenancy, lease assigned etc.

And the list goes on.

By having a legal lease that you are comfortable with will define the agents area of movement when negotiating a lease and should be issued to the prospective lessee along with their Heads of Agreement (proposed offer).

This way when the lessee signs off in the HoA that they have read and agreed to the pro forma lease, any legal costs associated with changing said document in additional to what has been proposed must be payable by the tenant.

I hopes this helps. It sounds daunting but it really isn't.
Do not forget tp take a minimum one months gross rent non refundable if they pull out.

All great info Chilli.
I've spent the better part of the last year studying up on the physical side of commercial so it seems I now need to concentrate my energy on the leasing part.
I might pose some questions for our solicitor early next week in preparation for when the property goes unconditional and we start looking for a tenant.

PS: If anyone wanted to PM me a great lease template, I would be eternally grateful... :)
 
PS: If anyone wanted to PM me a great lease template, I would be....

.....about 50 K lighter in the pocket.....


A good one takes years and years of painful and expensive lessons learnt to be incorporated. You ain't talking about little clicky-links territory anymore.


We're into the real business end of things here Bird Dog where people get wealthy off these things.


You simply have to ask yourself how much that paperwork is worth to you ??
 
.....about 50 K lighter in the pocket.....

You simply have to ask yourself how much that paperwork is worth to you ??

lol @ that, Dazz.

I know you'd be thinking "hang on, if they're willing to pay $50k, i wonder if they're willing to pay more...?"...:p:D
 
good to hear that you will be going over this with your solicitor to many of my landlords aren't happy to have their solicitor draw up the lease even though we have a template (REIV standard or Law institute standard) the ones that solicitors draw up are always different so make sure that the agent actually sits down and reads the lease (word for word) that your solicitor prepares (if you go that way)
 
I know you'd be thinking "hang on, if they're willing to pay $50k, i wonder if they're willing to pay more...?"...:p:D


Hang on....this thing isn't some Mickey Mouse normal document. It's chock full of protections that are worth 10's of K's each one of 'em to you when the brown hits the fan...


Then you've got that smeared over 10 or 15 years, then you've got that smeared over however many properties are going to be in your future portfolio.


In many people's eyes, 50K is a drop in the bucket for what they will generate you.


If you don't want to cough up...too easy, go get burnt the hard and loooong and expensive way like I did by paying some nonce solicitor $ 1,500 for a plain vanilla Lease that you can drive a B-double through the gaps without touching the sides.


Everyone wants the tips and tricks and free little short cuts.....but like everyone else, no-one is prepared to pay one dime. Humans I guess.
 
The trouble is how you can tell when you pay your $50k that you will actually get what Dazz describes. It's easily possible to spend $50k and end up with only a slight improvement over the $1.5k lease.

Ultimately the only way to tell the difference between a rolled gold document and the dross is to know the difference yourself. I have found it educational to read the leases from all the properties I have enquired about and seeing the (very) wide variation between them. Then at least you can brief a lawyer as to the key features of the document you are after.
 
Lesson # 4: This was told to me by a banker so take it with a grain of salt (hopefully a comm broker on here can clarify) but I was told that your establishment fee's can be much higher when going through a broker as the fee's they normally get from settling a resi loan are not paid and so he/she must pass on these fees to the borrower.
If anyone can answer this question either way, I would be most appreciative.

We seem to have silence from the brokers on this one... :confused:

Careful BD, that could be a touchy subject around here! :)
 
.....about 50 K lighter in the pocket.....


A good one takes years and years of painful and expensive lessons learnt to be incorporated. You ain't talking about little clicky-links territory anymore.

I was wondering when you'd chime in Dazz.. ;)

No arguments here on the true worth of a water tight lease. The trouble is as others have stated, how do you really know you are getting what you paid for unless you have the experience to pull it to pieces and still have it stand up.
The reality is only someone who has the experience and knowledge (after acquiring multiple properties) can truly know this... but then if you already know all of this, why would you need to pay someone $50,000 for it....

Anyway, it's a mute point for me as this is my first comm deal and every dollar I have will be spent getting it over the line and tenanted. I simply do not have a spare $50,000 lying around for a lease.
When the money is little less sparse, I will be hunting down a solid lease document for future use.

Can I at least ask the members for a recommendation of a solicitor in Melb who may be able to point me in the right direction as I'm not entirely clear on my current solicitors comm property experience...???
 
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We seem to have silence from the brokers on this one... :confused:

Careful BD, that could be a touchy subject around here! :)

Hi H.E...
Let me just go back and pre-cursor that statement with the disclaimer that it came from a banker who was potentially discouraging me from shopping her offer around (hence the line about taking it with a grain of salt).
I wasn't looking to cast stones but more so to qualify if it was genuine as being a noob, I'm still learning how to separate the wheat from the chaff..
 
Lesson # 4: This was told to me by a banker so take it with a grain of salt (hopefully a comm broker on here can clarify) but I was told that your establishment fee's can be much higher when going through a broker as the fee's they normally get from settling a resi loan are not paid and so he/she must pass on these fees to the borrower.
If anyone can answer this question either way, I would be most appreciative.

I have been pointed to this by someone............lord knows why.

Im not a big commercial lending fan...........throphy loans is what I like to call em, gets your settlement volumes up for those that are impressed by that.

We will do them, but not as stand alone deals, rather for existing clients or where there is a resi portfolio to go with it

Commercial Comms are usually MUCH less than resi for the life of the loan, and on average the deals are a bus load more work, with settlement ratios of less than half that of resi. More often than not u have the get the loans approved with 2 (or more) lenders to keep the bankers honest

Rarely, the best deal is with a lender that pays no comm, thats not an issue, the client will often ( not always) pay the 50 to 70 pts comm for that better deal.

Anyways, to answer ur question, the average BANK app fee for a comm deal of decent size is .5 to 1.2 % depending on full or lo doc, or how much fleece the sheep has ( bank talk)

I suspect your banker may be well served by a 25 kg bag of pool salt.........the MUCH MORE immediately rings the envy bell :)

ta
rolf
 
Cheers Wunderbar. All good advice...
Re chattels, will most definitely get this listed.

No, it's not and why would you want to do this?

How about you actually pay for some advice (what a novel idea!) and consult your Accountant before you go doing something you later can't undo?

Chattels should be a separate Bill of Sale. You can't borrow against chattels and including them in a Contract will most likely (a) incur Stamp duty and (b) make not the slightest difference to depreciation.

What you could do is pay (there's that word again!) for a Depreciation Schedule which will list everything possible which can be depreciated, set a handover value and provide you with a document acceptable to ATO.

We own commercial property and believe me, commercial property without a lease will mean putting up residential property as collateral security. Commercial property with no tenant is Terra nullius as far as lenders are concerned.

Paying for advice is always worth the money. You have someone you can hold accountable if their advice is wrong, and you relied on it.

Signing a Contract for residential property is one thing, signing for commercial without seeking professional advice on all matters to do with the deal is amateurish in the extreme.

Good luck!
Kristine

Oh, and with regards to fees with banks or with broker. What rot. Any broker with commercial accreditation is paid in the normal way ie the lender pays the aggregator for the introduction. I have just in increased one of my commercial loans, and believe me, commercial loans cost money. My loan is sitting at 9.75% and that is with a major bank, plus quite a few dollars in establishment fees, and a $750 annual fee just for the sake of it.

It's called 'playing with the big kids' and the big kids play hard.

For heaven's sake, go and pay for some advice.
 
Hang on....this thing isn't some Mickey Mouse normal document. It's chock full of protections that are worth 10's of K's each one of 'em to you when the brown hits the fan...


Then you've got that smeared over 10 or 15 years, then you've got that smeared over however many properties are going to be in your future portfolio.


In many people's eyes, 50K is a drop in the bucket for what they will generate you.


If you don't want to cough up...too easy, go get burnt the hard and loooong and expensive way like I did by paying some nonce solicitor $ 1,500 for a plain vanilla Lease that you can drive a B-double through the gaps without touching the sides.


Everyone wants the tips and tricks and free little short cuts.....but like everyone else, no-one is prepared to pay one dime. Humans I guess.

Dazz is right. Leases are extremely important as they are what dictates the agreement made by two paties which in turn are what secures the landlords income and protection of asset.

My work over the last few years has since a marked increase on designing new leases for properties and applying those terms to new tenants.

Some simple inclusions in a lease can save thousands as Dazz rightly pointed out not to mention the reduction in arguing.

However, as you can see through this thread, it is hard to know what should be added into a lease and what to negotiate with a tenant.

That takes years and years of first hand experience hence my willingness to assist you guys whenever I can.
 
No, it's not and why would you want to do this?

How about you actually pay for some advice (what a novel idea!) and consult your Accountant before you go doing something you later can't undo?

Chattels should be a separate Bill of Sale. You can't borrow against chattels and including them in a Contract will most likely (a) incur Stamp duty and (b) make not the slightest difference to depreciation.

What you could do is pay (there's that word again!) for a Depreciation Schedule which will list everything possible which can be depreciated, set a handover value and provide you with a document acceptable to ATO.

We own commercial property and believe me, commercial property without a lease will mean putting up residential property as collateral security. Commercial property with no tenant is Terra nullius as far as lenders are concerned.

Paying for advice is always worth the money. You have someone you can hold accountable if their advice is wrong, and you relied on it.

Signing a Contract for residential property is one thing, signing for commercial without seeking professional advice on all matters to do with the deal is amateurish in the extreme.

Good luck!
Kristine

Oh, and with regards to fees with banks or with broker. What rot. Any broker with commercial accreditation is paid in the normal way ie the lender pays the aggregator for the introduction. I have just in increased one of my commercial loans, and believe me, commercial loans cost money. My loan is sitting at 9.75% and that is with a major bank, plus quite a few dollars in establishment fees, and a $750 annual fee just for the sake of it.

It's called 'playing with the big kids' and the big kids play hard.

For heaven's sake, go and pay for some advice.

Thank you for taking the time to provide feedback Kristine.
The whole point of starting this post was to learn and offer the education in a forum based manner so that others could also gain the same knowledge before making the transition.
It certainly wasn't intended as propaganda for "How not to pay for the right advice"..

Just for the record, I did get my accountant to check over my current set-up and create the proper vehicle to which we purchased the property.
They also gave the same good advice you did on conducting the depreciation schedule and chattels were not listed on the contract of sale.
We also had our solicitor look over the contracts (prior to signing of course) and had them sign off before we committed to anything.

Both relationships are paid and by no means free.

cheers

B.D.
 
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