Possible to buy CIP under $1M
- Thread starter MTR
- Start date
Hi All
Be interested on whether it is possible to buy quality CIP under $1M?
I have been advised that the higher entry level the greater chance of securing a quality tenant.
Be interested in views on this, if anyone cares to share.
Thanks
MTR
Hi MTR
Of course it's possible. Why would you think otherwise?
Your second sentence is a generalisation and like all of those easily countered with specific examples. There are a number of those in the CIP section of the forum in addition to those currently advertised on realcommercial. But it is also true that tenants who can afford a rent bill of $1m per year are generally considered better "quality" than those who can only afford $50k per year.
It's just like resi otherwise though. Some people buy what they consider to be a quality property with what looks to me to be a rubbish yield and others buy what I think are pretty good properties with excellent yields. There is no accounting for taste, the perception of risk or the hope of capital gain out there. You just try to make some money on individual title deeds where it looks like all these factors are most in your favour... just have to find them.
The fact that I wouldn't touch 99% of what is out there in CIP land is not an argument to not invest in CIPs. Just as it isn't for RIPs, where the percentages for me are more like 99.99%.
Hi MTR
Of course it's possible. Why would you think otherwise?
Your second sentence is a generalisation and like all of those easily countered with specific examples. There are a number of those in the CIP section of the forum in addition to those currently advertised on realcommercial. But it is also true that tenants who can afford a rent bill of $1m per year are generally considered better "quality" than those who can only afford $50k per year.
It's just like resi otherwise though. Some people buy what they consider to be a quality property with what looks to me to be a rubbish yield and others buy what I think are pretty good properties with excellent yields. There is no accounting for taste, the perception of risk or the hope of capital gain out there. You just try to make some money on individual title deeds where it looks like all these factors are most in your favour... just have to find them.
The fact that I wouldn't touch 99% of what is out there in CIP land is not an argument to not invest in CIPs. Just as it isn't for RIPs, where the percentages for me are more like 99.99%.
Thanks for comments.
Out of curiosity it would be interesting to find out what some investors have purchased under $1M and the type of returns they are getting.
MTR
Plenty to choose from >$10M Aaron (as you would know) some yielding good returns too.
MTR, what type of CIP are you looking at? Quality obviously comes at a price. Are you looking towards leased with a couple of years left? or Vacant Possession and the yield is anyone's educated guess?
CIP takes in retail, commercial and industrial (possibly also mixed use as well).
Where are you looking? Capital cities? Regionals? Rural? Middle of nowhere?
Each type has a different risk/return profile as well as different drivers, likelihood of leasing quickly, rental growth etc?
What are your considerations with finance? (much harder to finance than residential if you don't have the 30-40% to stump up.
MTR, what type of CIP are you looking at? Quality obviously comes at a price. Are you looking towards leased with a couple of years left? or Vacant Possession and the yield is anyone's educated guess?
CIP takes in retail, commercial and industrial (possibly also mixed use as well).
Where are you looking? Capital cities? Regionals? Rural? Middle of nowhere?
Each type has a different risk/return profile as well as different drivers, likelihood of leasing quickly, rental growth etc?
What are your considerations with finance? (much harder to finance than residential if you don't have the 30-40% to stump up.
Why does it have to be 8 figures? I would have thought that a good buy - good capital growth prospects, long term tenants, positive cash flow, if found, could be six or seven figures.
OK, this is my attempt at finding a "decent" CIP under the 1M mark. What are peoples thoughts. Good / Bad? Would also like critiques on my reasoning considering I have never bought a CIP and would like to sharpen my skills for that glorious day when I eventually change ships. Also, have never been to sydney or know anything about it so pardon me if some of my reasoning are way off.
http://www.realcommercial.com.au/property-offices-nsw-sydney-500195756
asking: 805 K
gross rent: 76.388 k
outgoings: 13.884 k
net rent: 62.5 k (approx.)
net yield: 7.76 %
leased until 2015
assuming building is of A grade
size: 112 m2 (decent size to attract tenancies of already established business. Unlike the small 1-2 offices of startups that may or may not go bust in near future)
price p/ sqm: 7,187.5 (Colliers report on the low side but within fair value)
rent p/ sqm: 558 (slightly on low side. Colliers report A grade rent between 655-820 p/ sqm)
Tennant: Thailand Board of Investments. Don't know about others but I'd say thailand is a pretty stable country and thai government would be a decent enough tennant.
Location: Never been to Sydney CBD so don't know good from the bad roads but am guessing is in a good location. 3 road frontage (George st, Bridge st, Dalley st). Corner suite of glass building = lots of natural light. Only downside is that it is a south facing corner. Am assuming it is on level 10 based on suite number. Higher up the better the suite. If it is level 1 then another downside but shouldn't be a deal breaker.
Market outlook for office space in Sydney CBD looks stable for foreseeable future. Colliers forecast a drop in supply which should put a decent floor under current rents. Only spanner I see regarding overall market is the unconditional go-ahead and completion of barangaroo which will see a massive supply of new premium grade office space. Could flood the CBD and put downward pressure on price, rents, yields, in fact everything.
Of course, if was going to buy would go into more detail such as reading the lease contracts, looking through strata docos, actually visiting the site, etc. But am only doing this as an exercise to sharpen my thought process and start to think like a CIP investor
soooooooooooooo, what are peeps thoughts.
http://www.realcommercial.com.au/property-offices-nsw-sydney-500195756
asking: 805 K
gross rent: 76.388 k
outgoings: 13.884 k
net rent: 62.5 k (approx.)
net yield: 7.76 %
leased until 2015
assuming building is of A grade
size: 112 m2 (decent size to attract tenancies of already established business. Unlike the small 1-2 offices of startups that may or may not go bust in near future)
price p/ sqm: 7,187.5 (Colliers report on the low side but within fair value)
rent p/ sqm: 558 (slightly on low side. Colliers report A grade rent between 655-820 p/ sqm)
Tennant: Thailand Board of Investments. Don't know about others but I'd say thailand is a pretty stable country and thai government would be a decent enough tennant.
Location: Never been to Sydney CBD so don't know good from the bad roads but am guessing is in a good location. 3 road frontage (George st, Bridge st, Dalley st). Corner suite of glass building = lots of natural light. Only downside is that it is a south facing corner. Am assuming it is on level 10 based on suite number. Higher up the better the suite. If it is level 1 then another downside but shouldn't be a deal breaker.
Market outlook for office space in Sydney CBD looks stable for foreseeable future. Colliers forecast a drop in supply which should put a decent floor under current rents. Only spanner I see regarding overall market is the unconditional go-ahead and completion of barangaroo which will see a massive supply of new premium grade office space. Could flood the CBD and put downward pressure on price, rents, yields, in fact everything.
Of course, if was going to buy would go into more detail such as reading the lease contracts, looking through strata docos, actually visiting the site, etc. But am only doing this as an exercise to sharpen my thought process and start to think like a CIP investor
soooooooooooooo, what are peeps thoughts.
You're right China but I believe you get the AAA tenants in that price range. Plus you have far more control over your tenants at that level because you are dealing with stronger leases, better locations so you can command better rentals. Of course this is a while away for me but that's the end goal.
Or the reverse could happen. If you are dealing with a 10m comm property wherein the rental is 1m a year from a multi-national or national ASX list company, they, as the tenant also have a lot of bargaining power. They have the resources to move elsewhere and have a great say in the rent that they want to pay because they know that if they move, you, as the landlord may have great difficulty in finding another tenant in a hurry who can afford to pay 1m rent per year.
I wonder what sort of recourse that you as an owner of a single comm IP have over the Thai government should you have a disagreement over rental or other issues. I doubt the Aussie courts could do much.
Someone who has a $10M CIP probably could afford $1M in rent...
Yes they can afford it easily and that gives them, as a tenant, a lot of choice and bargaining power with their landlord.
I think you're thinking of big $10m office blocks in sub-standard locations. Eg a Centrelink or ATO office in residential suburbs.
Aaron is talking about smaller, centrally-located retail/development sites. Think of something on George St or Swanston St. As a tenant, you don't have much bargaining power because if you don't want it or play games with me, trust me when I say I can't wait to kick you out and give it to someone else because there's a whole queue dying to lease from me.
In fact one of my CBD tenants is playing games with me right now in a centrally located property 500m from Myers in the CBD and wants to speak to me. I just told the agent I don't want to speak and to issue him notice to vacate ASAP and whenever legal. I can't wait to take the site back, sub-divide it even further and bring in more tenants.
Thanks Delt, that explains it. I was talking to the owner of an 8 mil site whose single tenant was comm bank. When the lease came up for renewal, the bank dictated the terms and when the owner declined, the bank chose to set up elsewhere. Then after a few months of vacancy, the owner actually had to lower the rent and the bank came back on board in addition to its new site. So I was thinking of this scenario wherein the owner of an 8 mil CIP with a blue chip tenant had to cave in to the demands of the tenant.
Yes it is possible to buy 'quality' CIP for under 1m.
Just depends on your personal definition of 'quality'.
Probability and chance play no part in real estate. You cannot buy the entire market, you can only buy individual title deeds. What the average does or what the "market" does has no bearing on what your little patch is going to do.
A 'quality' tenant is also up for grabs. Some big Tenants are complete snakes and will shaft you horrendously, some small M&D operations are fantastic....but then the opposite can be true as well.
This is where investing your life savings into a CIP gets out of the realm of books and seminars and forums, and smack bang into the dog-eat-dog real world. None of the stuff you learn in books and seminars and forums is much chop out here.....you've got barracuda's out here in the deeper waters ready to snaffle up the doe-eyed beginners, chok full of book-learning theory and yet practically clueless.
Just depends on your personal definition of 'quality'.
Probability and chance play no part in real estate. You cannot buy the entire market, you can only buy individual title deeds. What the average does or what the "market" does has no bearing on what your little patch is going to do.
A 'quality' tenant is also up for grabs. Some big Tenants are complete snakes and will shaft you horrendously, some small M&D operations are fantastic....but then the opposite can be true as well.
This is where investing your life savings into a CIP gets out of the realm of books and seminars and forums, and smack bang into the dog-eat-dog real world. None of the stuff you learn in books and seminars and forums is much chop out here.....you've got barracuda's out here in the deeper waters ready to snaffle up the doe-eyed beginners, chok full of book-learning theory and yet practically clueless.
Daz is all over it as usual.
I have seen leases by Mum and Dad investors that would make the hardest W@stfield leasing officer cringe at the audacity of them. (how's 10x10 but with the Landlord able to terminate with 3 months notice if they wish to demolish, reconfigure or somehow alter the centre)
Others you can drive a truck through.
I have a client who is a very experienced businessman who has been ceo of large companies, started his own business etc and generally spent 20 plus years in some dog eat dog industries.
He now owns some commercial real estate agencies and says it is a different world out there.
The vacancy thing is obviously as a cash flow killer that can send people to the wall if they can't cover it. I did a commercial development in a tightly held estate on the Gold Coast in 2007, when I was going in, any for lease or for sale signs lasted no time at all, on the way out half the estate was for sale/lease.
I am a big fan of value add. Some well placed commercial can be easily cleaned up, extended, mez floor etc that greatly increases the return.
As Dazz said though, each property stands on its own and what the market is doing won't matter if you buy a dog of a site that has issues that can't be fixed.
I have seen leases by Mum and Dad investors that would make the hardest W@stfield leasing officer cringe at the audacity of them. (how's 10x10 but with the Landlord able to terminate with 3 months notice if they wish to demolish, reconfigure or somehow alter the centre)
Others you can drive a truck through.
I have a client who is a very experienced businessman who has been ceo of large companies, started his own business etc and generally spent 20 plus years in some dog eat dog industries.
He now owns some commercial real estate agencies and says it is a different world out there.
The vacancy thing is obviously as a cash flow killer that can send people to the wall if they can't cover it. I did a commercial development in a tightly held estate on the Gold Coast in 2007, when I was going in, any for lease or for sale signs lasted no time at all, on the way out half the estate was for sale/lease.
I am a big fan of value add. Some well placed commercial can be easily cleaned up, extended, mez floor etc that greatly increases the return.
As Dazz said though, each property stands on its own and what the market is doing won't matter if you buy a dog of a site that has issues that can't be fixed.
We bought a pig dog ugly trucking yard back in 2005 for <a certain amount>. It had a litany of non-paying Tenants and an 8' high back wall that we couldn't see for all of the rubbish strewn everywhere, accumulated over the previous 15 years from absolutely filthy owners.
We cleaned up 83 tonnes worth of rubbish off the block and spent the next 12 months kicking off every single one of the leeches who had been there. They collectively smashed the wall with forklifts, tried to burn the place down and left a further couple of truck loads of cr@p everywhere, then tried to get the police involved. The last guy was dealing narcotics on there, as well as stealing boats and caravans and using the sheds to make them over under the cover of darkness.
The police and detectives were watching him under surveillance in the carpark across the way. I had to go into the Police station and give a statement essentially saying I wasn't involved in the activities and would co-operate in any way. My Tenant found out and threatened to bomb my family and my home. I reported that as well, and had to spend 4 hours in a Police station, missing out on my birthday party to attend. The wrap sheet of this guy went to 4 pages. He eventually went to prison and is still there for bashing an 82 year old woman.
It took a while to regain control of the property we had purchased. It had big land.....that was it.
After 4 Tenants, one of which went bankrupt, it has proved OK.
It now rents for <a certain amount>K p.a. The outgoings are a further <a certain amount>K p.a. which the Tenants pay for.
We are just in the final throws of signing up a new Tenant on a 5+5+5 Ground Lease on our new super modified Lease, where we are only leasing the dirt, not the buildings or the infrastructure underneath. We are responsible for nothing.....they are responsible for everything.
Hopefully we don't hear or see the property until mid-2028.
It was recently valued at <a certain amount> as a vacant block. It has quadrupled in value in 8 years.
We've used that title deed as a deposit on a much larger shed. Leverage is a wonderful thing.
These types of property free you and your family from the drudgery of paid work forever. They are ugly & smelly.
I like them, so do the valuers, so does the Bank.
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MTR,
May be it is worthwhile to buy Freedhold Motel and/or Pub.
it provides an additional security in terms of rent and vacancy. if leasehold goes belly up,you can put manager in, run it for while and sell leasehold and get good money for re-selling business. (Not Building)
Generally lease terms for such business are 5 years +
May be it is worthwhile to buy Freedhold Motel and/or Pub.
it provides an additional security in terms of rent and vacancy. if leasehold goes belly up,you can put manager in, run it for while and sell leasehold and get good money for re-selling business. (Not Building)
Generally lease terms for such business are 5 years +
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