Sydney CIP

I mentioned before I was doing some research into Sydney CIP.
As also mentioned I still believe the market still is'nt going anywhere for a while, though interest rate increases could lower prices. So I aint i no hurry atm.

What I'm seeing so far is fairly often returns of ~9% before negotiating, therefore positive geared investments.
From what I'm seeing the sub 1mil market us generally to expensive.
There are much better returns in the 3mil+ market where returns can be quite good if you find a motivated seller. So good that you could retire with one good deal.
An example with nice round numbers (before negotiating**) is:
Price = 5mil
Yield = 450k (9%) Obviously the tenant, industry etc are factors that need be considered as well.
20% deposit = 1mil
Loan = 4mil
Interest @ 8% 320k*
gross income = 130K (there's always other tiddly bits to pay)
So the return on the 1mil deposit is ~13%.
If you have a nice 10yr lease and dont take out any $$, by then you either have and offset account with 1.3mil or a loan of 2.7mil.
Assuming it's leased again at the same return of 450k (hopefully very cheap by then), interest is now 270K @10% thus making ~net income = 180k.
So there's your retirement in 10 years, assuming that it can be released at current rent rates if you got a million bux sitting around. Infact rents need to be 40% cheaper in 10 yrs time for it to break even, even by my conservative standards the risk is'nt all that steep.

*The cost of finance is very important in these types of deals, and here's where having some resi RE can help bring that cost down.
If you have 2 mil of the loan resi secured @ 7% the interest bill is 20k yr less.

**This also makes a big difference in the numbers.
If you can negotiate a price of 4.5mil then interest is 280k (@8%) giving ~nett income of 170k (17% return on 1mil) and looks pretty sweet.
Infact if you borrow the whole lot at this price, it's still has a +ve cashflow of 90k, but I would'nt really consider this option unless you have another good source of secure investment income.

But this is a game where only real millionaires can sit at the table and play where you need to bring a cheque (or cash) of at least one small million to start playing.
API resi "multi-millionaires" with 80% LVR dont have much chance here.

PS these are very broad and round about calculations and assumptions, use at your own risk of bankruptcy.
 
I think you've pretty much captured what Dazz has been saying for a while now.
With respect to the resi investors, their scruity often isn't worth anything to the banks when it comes to borrowing for CIP's at the higher levels you're talking about.
Totally different game. Different rules, strategies and even the pieces on the board are different.
Thanks for sharing your thoughts. Definately food for thought there.
 
With respect to the resi investors, their scruity often isn't worth anything to the banks when it comes to borrowing for CIP's at the higher levels you're talking about.

Unless you have already established LOCs that can be used.
Or your resi equity is way over the amount your borrowing, ie 60% LVR no-docs.
Again 100% finance is risky imo, though if your on >300k salary on a long term contract, it could be a different matter.

Wow....
Can you get away with a 20% dep on a 5mil CIP deal?
Yep!
Though he did point out that the finance was not easy, and that's why most buyers will fall at finance stage.
I never said it was easy.
 
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Great post and food for thought....

I'd be more comfortable accumulating several lower valued CIPs (as I've just started to do), over time, so if you have one vacancy it wont sink the ship. The downside of this of course if you miss out on those supercharged yields!!

But for those with more equity than me then these options are sensationally delicious if you can handle the risk (one day, one day!!! :rolleyes:)

You'd also want to lock in rates, as a 2 - 3% blow out in IR's could cause you some pain.
 
What I'm seeing so far is fairly often returns of ~9% before negotiating, therefore positive geared investments.
From what I'm seeing the sub 1mil market us generally to expensive.
There are much better returns in the 3mil+ market where returns can be quite good if you find a motivated seller.

I wonder if this is because there are a lot of distressed sellers in the $3m+ category (and if so why) or just that in that price range deals need to cover their own interest bill as negative gearing just doesnt fly due to the size of the deals and the nature of the purchasers (whereas in the c. $1m or less its still used as a risk mitigation tool)???????
 
Hi PB

An excellent post. All I can say is that your observations on the Sydney market tally with mine. It's when you get over $3m that you start playing a different and altogether more interesting game.

And if you could PM me the financier who goes 80% on Sydney CIPs I'd be much obliged... :)
 
I wonder if this is because there are a lot of distressed sellers in the $3m+ category (and if so why) or just that in that price range deals need to cover their own interest bill as negative gearing just doesnt fly due to the size of the deals and the nature of the purchasers (whereas in the c. $1m or less its still used as a risk mitigation tool)???????
The downside of this of course if you miss out on those supercharged yields!!
But for those with more equity than me then these options are sensationally delicious if you can handle the risk (one day, one day!!! :rolleyes:)
You'd also want to lock in rates, as a 2 - 3% blow out in IR's could cause you some pain.

As Dazz points out, most experienced investors have higher yield expectations because they know the volatility and risk involved.
Also I think many of these properties were bought for more than they are now selling.
In the lower prices, yields are smaller because it's in the "mum's & dad's" price range and generally they don't know how to factor in risk and pay a premium.
I remember reading an API article from T rider a few years ago saying 6-7% yield on commercial is ok.
Well there's no way in hell I'd pay 6% yield on CIP unless it's at a hefty discount from current bank valuation (neva say neva).
And yep higher rates can kill you, though I did'nt account for 3-4% yearly increases and market rent reviews that are written in just about every lease.
A 4% increase in rent is 18K, a 0.5% increase on 4mil is 20k.
Again using very broad brush here.

Hi PB
An excellent post. All I can say is that your observations on the Sydney market tally with mine. It's when you get over $3m that you start playing a different and altogether more interesting game.
And if you could PM me the financier who goes 80% on Sydney CIPs I'd be much obliged... :)
Ok, I'm on the record here for saying that 20% deposit for CIP can be done.
I still think it can be done as an existing customer, with a darn good deal and a lot of negotiating (and xcolling).
There's times when I can't, and I aint too worried as imo if I cant get finance 99% of others cant either, and the other 1% will outbid me anyway.
I've posted here many times about dealing with banks which seems a little different to the standard way of doing biz around here. I deal with all majors.
The banks sell money, they have to sell money to make money.

Anyways I'm still only getting started on this mission, and the latest rate rise will probly bring more sellers out.
The other factor is a lot of leases will end this year on many properties for sale, so I'll let them worry about securing the lease.
HE as you know it's a very thin market and I aint really sure about how much detail I'm gonna put out here other than very generic meanderings.
 
Hey all,
What I have been planning as my next step is getting involved in syndication to allow me to be involved even in a small part in these higher yielding deals. I am a while away as I am just nailing my first resi place, but seems like a good cashflow option to me. Some thoughts from the more experienced hands would be great, I was thinking of maybe the deals Chris Lang puts together. From what I can gather say:
10 - 20 participants
100k each from LOC or similar would give you at least 1 mill in the pool + finance gives the syndicate a few options.

I have bought Chris's book, a good read but is still at a fairly basic level.

Thanks
8fold
 
Hey all,
What I have been planning as my next step is getting involved in syndication to allow me to be involved even in a small part in these higher yielding deals. I am a while away as I am just nailing my first resi place, but seems like a good cashflow option to me. Some thoughts from the more experienced hands would be great, I was thinking of maybe the deals Chris Lang puts together. From what I can gather say:
10 - 20 participants
100k each from LOC or similar would give you at least 1 mill in the pool + finance gives the syndicate a few options.

I have bought Chris's book, a good read but is still at a fairly basic level.

Thanks
8fold

8fold,

I spoke to Chris Lang recently about private syndicates and he said that since the GFC there has been less interest in this, and he is doing less of this, and that you would have to find your own group of people to invest with eg. family, friends etc..., but then he can assist with formalising the arrangement and helping to find a property after this.
 
Well, seems like I am a bit late to that party, although maybe I could find a group of like minded inviduals when I am ready. I should get on a forum that has people interested in CIP, with a few experienced hands to run ideas past, and a few more that may like to start a syndicate.......oh...............hang on
;):D

hows a CIP (comm investors group) get together sound :D
 
I spoke to Chris Lang recently about private syndicates and he said that since the GFC there has been less interest in this, and he is doing less of this, and that you would have to find your own group of people to invest with eg. family, friends etc..., but then he can assist with formalising the arrangement and helping to find a property after this.

You can always go with a promoter if forming you're own group is too difficult. Usually 500k minimum investment unless you're a sophisticated investor.

Generally around 9% yield, capital growth near CPI.

Not sure if banks will lend that 500k so it may have to be cash/equity, in which case that could be a deposit on a private CIP.
 
Interesting that today I get spammed by Chris Lang about some overpriced cubicles in some office building innit?

10 - 20 participants
100k each from LOC or similar would give you at least 1 mill in the pool + finance gives the syndicate a few options.
Yet a syndicate has way less options trying to keep everyone happy.
I only have to keep one person happy and i can find my own properties, if they don't find me first.
 
It seems there's people outside Sydney too...

This place looks familiar, wonder how high it can be built.
http://www.realcommercial.com.au/cg...1326325&p=10&s=nsw&snf=as&t=com&tm=1271068466
Though given the location I would'nt expect high yields.


http://www.realcommercial.com.au/cg...er=&cc=&c=51326325&s=nsw&snf=as&tm=1271068466
15 year lease + options to Department of
Defence (98% of total income)
Net Income: $1,157,088pa + GST
ROI 8.26% pa
This one is pretty far out, though it is next to water.
Given it's location me thinks yield is way low.
 
Interesting that today I get spammed by Chris Lang about some overpriced cubicles in some office building innit?

I got it also I think he is a mind reader, I have wrapped my head in alfoil just to be sure :cool:


Yet a syndicate has way less options trying to keep everyone happy.
I only have to keep one person happy and i can find my own properties, if they don't find me first.

Very true, although seems a good option if you dont have the cash to go it alone and get access to the bigger deals. I am easy to keep happy, as long as the money is coming in its all smiles.:)
 
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Yet a syndicate has way less options trying to keep everyone happy.
I only have to keep one person happy and i can find my own properties, if they don't find me first.

Yes. There'll be an exit strategy in place - eg the contract will require that after an eight year period the unit holders will vote on whether to sell or hold for another x years.

If the syndicate has been put together by a promoter, the promoter will collect an exit fee at this point. Say 2.5% of the sale price (or property value if the vote is to hold).
 
If the syndicate has been put together by a promoter, the promoter will collect an exit fee at this point. Say 2.5% of the sale price (or property value if the vote is to hold).

Sounds like a bad deal to me, I have bucklys and none intentions of ever dealing with a promoter.
I know of plenty investors who don't need them either, maybe you should find some.
Why buy CIP at 6% and 30% deposit, pay promoter fees when you can buy resi with the same return, 20% deposit and no promoter fees.
CIP carries considerable more risk and thus should earn considerable better returns.
Joining a syndicate and paying promoter fees does not mitigate that risk, it makes it higher.
I'd rather buy reits or westfield.
 
CIP carries considerable more risk


I swallowed that one hook, line and sinker as well PB when I first read it in a Jan Somers book way back in the early 90's. Firmly believed it for over 10 years, missing out on some fantastic deals because of it.


It took a wise uncle to snap me out of it and show me it wasn't quite the gospel I had taken it for.


Risk sure is a massive area of study. It would take a 500 page thesis to fully cover what you mean exactly in that one little word.


I would contend leaving your money in a bank account would be far more risky to your long term wealth. Trouble is, the average Joe won't realise it until it's too late.
 
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