Pro's and Cons of this for a start in Com

[jingo]

Hi everyone,

Just wondering if people could share their ideas on something like this as a start in Com. (I haven't bought it - it is just an example). (Go to shop 1 - Jessie's Pizza Shop)

http://investmentportfolioauction.com.au/last-auction.html

Pros that I can see

1) Manageable first com investment (small amount of money)
2) Long Lease with CPI increases to a company that has been in business for at least 20 yrs.
3) Could pay down the loan more or less over the time of the lease, meaning that if there was a vacancy after the lease ended it wouldn't cause an investor too many problems from a cashflow point of view.


Cons

1) A fair way out of the CBD (around 25kms) meaning capital growth would probably be limited (but not entirely sure about this).
2) Unsure of what the small shopping strip would be like in 10 yrs time. (Although the main anchor tenant there is an IGA store on a 15 yr lease with options).



Any one's thoughts would be appreciated.


Regards Jason.

 

[buzzlightyear]

The first thought about the lease return is that it is higher for retail that I have seen, admittedly not that quite far out of the CBD. Which prompts the question is, is this the business owner selling the property?

If so, is the sale price reflective of other comparables or is it reflective of an artificially higher lease? If so, I suspect it would only suit a small amount of investors who would have a very high deposit or even 100% cash, so that financing issues aren't going to be roadblocks.

Edit: Having a look at the other retail sales by that REA (three in the same complex), maybe they were sold by the developer who would also fall into the same category above

 

[buzzlightyear]

Jason, we need to recruit more commercial property investors to this forum?

 

[jingo]

Jason, we need to recruit more commercial property investors to this forum?

Indeed! I am not a commercial property investor - yet - but am certainly interested and looking.

Regards Jason.

 

[Belbo]

Jason, we need to recruit more commercial property investors to this forum?

It's a bit like the question previously asked in this subforum, why aren't there more books written by Australians in this feild, the answering being of course that those in the CIP game are too busy making money to be bothered.

As to the specific question of that pizza shop, it looks promsing to my untrained eyes, but fully comprehending the obligations and limitaions of being in a shopping centre would be a major consideration in your due diligence, I'd imagine.

Let us know how you go in your CIP hunt!

 

[jaycee]

Looks sold to me when I looked at the ad.

Starts off probably a bit cashflow negative, I am thinking of previous posts discussing higher lending rates for commervcial, (but by nowhere near normal residential negative though), and it wouldn't take long to become neutral...

 

[Dazz]

why aren't there more books written by Australians in this feild, the answer being of course that those in the CIP game are too busy making money to be bothered.

....because those who could write a decent book detailing what you are craving to know have no need to.

It doesn't help of course, when you go to seminars yourself and hear a multitude of typical Aussie tall poppy cutters at the back all sledging the presenter with things like ;

"yeah, well, if he was any good, he wouldn't be up there on the stage blabbering away to us for our $ 29 entry fee, he'd be out applying this stuff and making millions. Nah, he's a joke, just like the rest of 'em."​

Rather than come ashore and be ridiculed by people who are saturated with shonksters.....did anyone see what the tabloid journalists did to a straight shooter like Steve McKnight, a guy with a ton of integrity.....the smart ones stay out there in the deep end of the pool doing deals and raking in the money.

You do get some Mickey Mouse authors who've done one or two deals and put together some formulaic book, but the content is very light indeed, very generalised and not in the least bit helpful. People like to read real war stories, real problems solved, real negotiating tactics, real laws being applied.....the nitty gritty details just are not recorded. Well, they are in my personal diary for the kid's benefit later on to see how Dad actually put the deals together, but no one else needs to, or is going to know.

Of course, the cover price of the book is chewed up with publishers fees to the point that the author would be lucky to make $ 1.50 out of a $ 24.95 retail book, and with the way bookshops are going broke, that ain't gonna last. She's all downhill on that slippery slope.

People purchasing books looks very similar to the private housing rental market. There is a demand there, but the price willingly proferred for the product is a pittance. E-books you mention ?? 50c a pop then copied and downloaded for free ?? Get real.....the knowledge is worth hundreds of millions of dollars if applied correctly over a lifetime.

For the price you're willing to pay, you'll have to contend yourself with the slim pickings of nigh on useless generalisations, half truths and agents blurb.

 

[Belbo]

Fair enough, Dazz, but unless you're grandchildren are as keen on CIP as you are I hardly expect they'll be thanking you for the opportunity to read your diary one day.

Reading back a few of the longer threads over the last couple of days in this subforum one sentiment really did stand out strongly though: To really start learning CIP you just have to start doing it.

I'm sure I speak for everyone in saying thanks again Dazz for putting so much on here about CP investing already, and with the hope that you'll continue doing so.

 

[Dazz]

Fair enough, Dazz, but unless you're grandchildren are as keen on CIP as you are I hardly expect they'll be thanking you for the opportunity to read your diary one day.

I don't know for sure, but I suspect they'll be thanking me for the economic benefits that flow from owning such assets. The diary will be there to show them a small glimpse as to how Grandad did it.

The real nuts and bolts of how to invest in CIPs will be passed down from their parents though I suspect, who by that stage will be actively working the deals and managing the portfolio.

one sentiment really did stand out strongly though: To really start learning CIP you just have to start doing it.

Exactly right. Everyone on here wants to take the new age easy route. They want a clicky link, they want a short concise 'tips and tricks' list, they want a '7 potholes to avoid on the CIP road to wealth' book.

They appear to be paralysed by fear. Fear of the unknown.

Ask the chaps on here who have 1 or 2 deals under their belts, and I'm sure they'll all tell you that they gained massive experience and knowledge from simply going through the entire process of making the deal stack up. You just can't get that from seminars or books. You've got nothing on the line, and so your senses aren't alive, you don't have your radar on, and you aren't at your best.

Mind you, it doesn't help when most of the books pumped out in the last 20 years by the likes of Jan Somers and Noel Whittaker (and a smattering of others beside all the other gurus eminating out of Qld) actively pump that fear, or dismiss the massive massive CIP sphere with some irrelevant skimmed over 1/3rd of one page. Hell, when reading the small piece by Jan Somers in her books, I took her word for the next 12 years as gospel. Looking back, that was one of my mostly costly mistakes.

 

[Aaron Sice]

I think you're being a tiny bit harsh there Dazz.

Not everyone starting out in comm are able to avoid the spruiikers. A lot of folk don't understand the cap rate scenario, or get sucked into retail and end up destroyed, or get shafted into buying a factory unit in Landsdale.....

There are more riches to rags stories in comm than there are rags to riches stories in resi.

Lke you say, the best deals aren't advertised on re.com, most aren't even on the mail out lists of the larger comm agents, either. That leaves SS and/or someone you know who is successful for advice......and if you don't have those then I would really wonder how folk get on.

If you get canned in comm re, the banks aren't likely to look at you again for a long time. Considering how risk averse 95% of the population are its no wonder people get burned.

Many people who invest still aren't financially literate enough to cope with the figures they're dealing with. Call me a bleeding heart, but I don't think that warrants a 500k to 1mil lesson in accountability and "lessons in comm 101".

Something like that could destroy someones investing ability for over a decade. And seeing how much the retail act has changed in that time, there's no guarantee that the lesson learned then is relevant now.

Cheers.

 

[Dazz]

I think you're being a tiny bit harsh there Dazz.

Maybe so chief, but then perhaps I'm a product of the environment I deal in.


She's no picnic out here, you need to be on your guard 24/7. I got taken many times during the early years. There were no books available, no one to ask, no one offering advice.


I can well understand why most don't venture forth.....the vast majority in fact. That's cool. But it doesn't imply there aren't deals to be done, it's just most people aren't willing to risk everything they have to go forth....which is what the Banks will insist upon if you do go forth.


Your comments on retail are well noted. I've taken a slight detour down that track, but she's a bumpy ride, and I'm looking for the exit back to the smooth industrial and comm highway. Having said that, Westfield seem to have done OK, so there's a buck to be made.....she's not that bad, but there is better to be had. Everything needs to be compared with everything else, rather than looked at in isolation.

 

[murph14]

Your comments on retail are well noted. I've taken a slight detour down that track, but she's a bumpy ride, and I'm looking for the exit back to the smooth industrial and comm highway. Having said that, Westfield seem to have done OK, so there's a buck to be made.....she's not that bad, but there is better to be had. Everything needs to be compared with everything else, rather than looked at in isolation.

Hi Dazz

Do you own a Westfield? From what I've read, you've put your heart and soul in to that shopping centre; why would you want to flick off a great achievement? Why do you prefer industrial to retail?

Maybe the TYPE of person who wants to start a manicure business is a 'donkey' as you put it and someone who needs an industrial depot is a big player - I dunno, a tiger.

 

[shuggy]

Agree it looks like a developer sold them after securing tenants and interesting to see the results from 5 sales in the same strip.. i'd have thought the IGA's yield would be less than a pizza shop for 6 x the price?

IGA - Sold
$2,700,000
Yield 7.8%

pizza shop - Sold
$440,000
Yield 7.7%

bakery - Sold
$480,000
Yield 7.0%

fish & chip shop - Sold
$470,000
Yield 7.2%

hair salon - Sold
$440,000
Yield 8.2%

The first thought about the lease return is that it is higher for retail that I have seen, admittedly not that quite far out of the CBD. Which prompts the question is, is this the business owner selling the property?

If so, is the sale price reflective of other comparables or is it reflective of an artificially higher lease? If so, I suspect it would only suit a small amount of investors who would have a very high deposit or even 100% cash, so that financing issues aren't going to be roadblocks.

Edit: Having a look at the other retail sales by that REA (three in the same complex), maybe they were sold by the developer who would also fall into the same category above