What should we do with $1M
- Thread starter wylie
- Start date
I've just spent some time looking through the commercial site, and my head is spinning. There is just so much to look at, so many different types of premises, areas and deals, and plenty with no prices.
I'm wondering whether, if we decide to look into commercial, we can use a broker to find us a deal that is good rather than us trying to wade through stuff we have no comprehension of.
I feel a little like a passenger trying to land a plane, or a bystander trying to work out how to perform brain surgery. No wonder people stick to what they know best
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I'm wondering whether, if we decide to look into commercial, we can use a broker to find us a deal that is good rather than us trying to wade through stuff we have no comprehension of.
I feel a little like a passenger trying to land a plane, or a bystander trying to work out how to perform brain surgery. No wonder people stick to what they know best
.They want to concentrate on their core business.
By renting they can make more money else where (doing what they are good at) and can claim more on deductions (rent, expenses, depreciations...).
Also, now owning business building means they don't have to have to come upfront with big capital amount to purchase the buildings.
In short the answer is ROE (Return on Equity). CBA produces around 17% return on it's equity. Rather than use $900K to purchase the property it would prefer to re-invest that $900K back in it's own business and generate 17% profit on the $900K.
Also, GAAP accounting doesn't factor in increase in value for the property. If they buy it for $900K today, in 20 years time their balance sheet will still show that asset valued at $900K minus depreciation.
Rent they pay is tax deduction. So companies whose ROE is greater than the return they would normally expect from owning the commercial property would be better off re-investing the profits within the business.
Cheers,
Oracle.
yer, I know what you mean! Your mindset really needs to change. I spoke to an award winning buyers agency a while back about finding me a commercial property. They said they hadn't done it before but could probably help me. Might be a good business opportunity for people who understand commercial property really well!I've just spent some time looking through the commercial site, and my head is spinning. There is just so much to look at, so many different types of premises, areas and deals, and plenty with no prices.
I'm wondering whether, if we decide to look into commercial, we can use a broker to find us a deal that is good rather than us trying to wade through stuff we have no comprehension of.
I feel a little like a passenger trying to land a plane, or a bystander trying to work out how to perform brain surgery. No wonder people stick to what they know best
Thanks! Well explained, I will put it to him that way as I didn't elaborate as much!
Another great explanation, thanks!! and Penny, that's gold!!
When 2015 comes around on the calender,how do you get a new lease in place... how do you know cba will still want to be there or how long will it to get a new tenant in place like the existing? Do you have a new lease done months or a year before the existing lease is up?
I've just spent some time looking through the commercial site, and my head is spinning. There is just so much to look at, so many different types of premises, areas and deals, and plenty with no prices.
I'm wondering whether, if we decide to look into commercial, we can use a broker to find us a deal that is good rather than us trying to wade through stuff we have no comprehension of.
I feel a little like a passenger trying to land a plane, or a bystander trying to work out how to perform brain surgery. No wonder people stick to what they know best
My head spins too..being new to this site i feel like sometimes... should I post or not post, as some of my questions might sound dumb. After reading some of the early interviews by forum memembers I am inspired by there achievements but feel clueless after reading there achievements
When buying banks etc I have noticed that the ones they seem eager to sell are the branches that are not in growth areas.
I would be investigating the current rental per m2 for that shopping centre, if you pay a premium for an A grade tenant and that tenant vacates then the value of the property could fall.
I am aware of quite a few in my local area that have had a bad experience buying banks.
I would be investigating the current rental per m2 for that shopping centre, if you pay a premium for an A grade tenant and that tenant vacates then the value of the property could fall.
I am aware of quite a few in my local area that have had a bad experience buying banks.
Bah bah black sheep
Please explain?
One question I have about this particular link Dazz has put up, and would love to hear from anybody who has any knowledge about either part of the question.
Part 1 - If CBA closes that branch, assumably when the lease is up, would the likely rent from the next tenant be anywhere near what CBA is paying? I assume not, but really have no clue.
Part 2 - If CBA closes that branch, could somebody actually live in the building, or would it have to be a business. I imagine I might need to check zoning or something, but I've always wondered about whether some of these plain jane boxy buildings could be rented as private accommodation if the rental market was so flat that a commercial tenant could not be found at a reasonable rent.
Thanks CU.
Am I correct in reading this that the agent (a person) can enter the contract on behalf of the principal (with a written agreement) however the principal must provide the deposit monies?
My statement in the earlier post relates to a trust that is not in existence at the time of signing hence not providing the deposit. It will reimburse the original person (agent) signing the contract and provide closing and balance costs, however if was not in existence in the first instance, then won't this attract another stamp duty?
Don't wish to stray the intent of the thread, however would appreciate your clarification for a simple non-legal fella.
Nah- you are right as regards the buyer being a trustee- the trust needs to be in existence before signing otherwise they seem to treat it as a double transaction. I tell my clients to do what you are doing- have a cleanskin ready to go in advance. As soon as you try substituting buyers some sellers will try to get a bit clever and hit you up for their (inflated) legals. I suppose there are ways around it with convoluted special conditions but this may scare some sellers off- keep it simple is the best bet.
Wylie I would be going down the path as outlined below by Macca. Try to find out what the other tenants around the bank are paying. Chatting to the local commercial leasing agents would also give you an idea of rents, vacancy, other types of businesses.
I'd get some grammar and proofing lessons.
I'd get some grammar and proofing lessons.
Sigh, just shut up.
There is no need for that.
Having a go at people over the internet doesn't make you better.
Hi Wylie,
Given your understandable aversion to anything that doesn't resemble what you are comfortable with, and have been successfuly investing in for 30 years now, it is reasonable that you are asking those questions....all of which start with "If the CBA close that branch..."
It's a big step, I know.....different language, different metrics, different feel to it, different risks....all these must be overcome if you are to be a successful comm. Landlord.
Macca has rightfully put the absolute Fear of God into you, and it appears that many support that fear. In fact, over 95% of residential investors subscribe to that fear and it stops them, dead in their tracks. It was certainly enough to stop that other Qld lady we all know with a familar name, so you'd be in good company if it scares the bejesus out of you.
I believed Jan when she wrote about the risks in her books, the fear stopped me dead in my tracks as well. It took 6 years of ignoring her and another 3 of my uncle convincing me before I grappled with the fear. Those 9 years of frozen stiff fear cost me millions in lost opportunities.
I chose that post that link, as it was about the lowest risk thing I could find in your immediate area within your budget. The Tenant has been there since the mid 80's and has just enetered a fresh 5 year Lease. The rent isn't stellar by any stretch when compared to a really good property, but then the risk isn't large either.
What you need to do, if you wish to pursue it further, is contact the agent and ask for an IM (Information Memorandum). On email - ask them to send thru to you the IM. Don't ask for the Information Memorandum....that's one of the signs the agent looks for to tell whether they are dealing with a commercial bunny or not. It will contain all of the pertinent information regarding the property and the Lease. Have a good squizz.
You aren't buying this property off the Bank. It clearly says the Vendor is a retired old lady who wishes to move on. She's probably a wealth of knowledge like you are and would like nothing better than to pass ownership onto you....why not try and get a conversation going with her, scoot around the agent.....you never know, you might get on like a house on fire, talk about pumpkin scones or whatever Qld ladies natter about.
I reckon the figures would look like this ;
Capital
875K purchase price
400K cash injection
500K loan (to cover shortfall and costs)
Income
Gross Rent.......$ 75,600
Outgoings
Council Rates...$ 1,450
Water Rates.....$ 950
Land Tax..........$ dunno for Qld (start a new co and trust)
Insurance........$ 2,500
Nett Rent.........$ 70,700 (nett yield of 8.1% on 875K purchase price)
Mortgage.........$ 41,000 (500K loan at 8.2% pa)
Nett Profit........$ 29,700 ( $ 570 pw in your pocket )
That profit figure is better than what you calculated by holding cash at bank. Of course, the cash at bank would attract hefty tax payable. Not good.
This asset would be best held in a discretionary trust fund, such that you would be able to farm out the profit to all and sundry within your family, such that no tax would be paid if you played your cards smart.
There will be a clause in the Lease whereby the Bank will need to give you notice (probably 6 months) whetehr they wish to take up any existing options...say another 5 years, or wish to enter negotiations with you for a fresh Lease if this term has no option periods left, or if they wish to leave.
You of course need to do your groundwork, as you do with any purchase, to consider whether the banyo area is adequately serviced with CBA locations. The first thing I'd do is find the location of all of the nearest branches botht he CBA and their rivals have. Would take you less than a day to have a drive around and plot on the map where the closest ATM machines and full branches are in the area. You live just around the corner anyway, so you'll know.
If there is a shopping strip there, and most of their big rivals are located also in the area, you can intelligently assume that the CBA will not wish to give up their corporate presence in the region.
Other thing to do is go in there and have a walk thru the office. What does the current fit-out look like ?? Does it look brand spanking new, like they are planning on being there forever, or does it feel a bit tired and worn through, like they can't wait to get out of there ?? Have a chat with the personnel, they usually couldn't give a fig either way and will tell you the truth.
Good luck with whatever you choose.
Given your understandable aversion to anything that doesn't resemble what you are comfortable with, and have been successfuly investing in for 30 years now, it is reasonable that you are asking those questions....all of which start with "If the CBA close that branch..."
It's a big step, I know.....different language, different metrics, different feel to it, different risks....all these must be overcome if you are to be a successful comm. Landlord.
Macca has rightfully put the absolute Fear of God into you, and it appears that many support that fear. In fact, over 95% of residential investors subscribe to that fear and it stops them, dead in their tracks. It was certainly enough to stop that other Qld lady we all know with a familar name, so you'd be in good company if it scares the bejesus out of you.
I believed Jan when she wrote about the risks in her books, the fear stopped me dead in my tracks as well. It took 6 years of ignoring her and another 3 of my uncle convincing me before I grappled with the fear. Those 9 years of frozen stiff fear cost me millions in lost opportunities.
I chose that post that link, as it was about the lowest risk thing I could find in your immediate area within your budget. The Tenant has been there since the mid 80's and has just enetered a fresh 5 year Lease. The rent isn't stellar by any stretch when compared to a really good property, but then the risk isn't large either.
What you need to do, if you wish to pursue it further, is contact the agent and ask for an IM (Information Memorandum). On email - ask them to send thru to you the IM. Don't ask for the Information Memorandum....that's one of the signs the agent looks for to tell whether they are dealing with a commercial bunny or not. It will contain all of the pertinent information regarding the property and the Lease. Have a good squizz.
You aren't buying this property off the Bank. It clearly says the Vendor is a retired old lady who wishes to move on. She's probably a wealth of knowledge like you are and would like nothing better than to pass ownership onto you....why not try and get a conversation going with her, scoot around the agent.....you never know, you might get on like a house on fire, talk about pumpkin scones or whatever Qld ladies natter about.
I reckon the figures would look like this ;
Capital
875K purchase price
400K cash injection
500K loan (to cover shortfall and costs)
Income
Gross Rent.......$ 75,600
Outgoings
Council Rates...$ 1,450
Water Rates.....$ 950
Land Tax..........$ dunno for Qld (start a new co and trust)
Insurance........$ 2,500
Nett Rent.........$ 70,700 (nett yield of 8.1% on 875K purchase price)
Mortgage.........$ 41,000 (500K loan at 8.2% pa)
Nett Profit........$ 29,700 ( $ 570 pw in your pocket )
That profit figure is better than what you calculated by holding cash at bank. Of course, the cash at bank would attract hefty tax payable. Not good.
This asset would be best held in a discretionary trust fund, such that you would be able to farm out the profit to all and sundry within your family, such that no tax would be paid if you played your cards smart.
There will be a clause in the Lease whereby the Bank will need to give you notice (probably 6 months) whetehr they wish to take up any existing options...say another 5 years, or wish to enter negotiations with you for a fresh Lease if this term has no option periods left, or if they wish to leave.
You of course need to do your groundwork, as you do with any purchase, to consider whether the banyo area is adequately serviced with CBA locations. The first thing I'd do is find the location of all of the nearest branches botht he CBA and their rivals have. Would take you less than a day to have a drive around and plot on the map where the closest ATM machines and full branches are in the area. You live just around the corner anyway, so you'll know.
If there is a shopping strip there, and most of their big rivals are located also in the area, you can intelligently assume that the CBA will not wish to give up their corporate presence in the region.
Other thing to do is go in there and have a walk thru the office. What does the current fit-out look like ?? Does it look brand spanking new, like they are planning on being there forever, or does it feel a bit tired and worn through, like they can't wait to get out of there ?? Have a chat with the personnel, they usually couldn't give a fig either way and will tell you the truth.
Good luck with whatever you choose.
Thanks Dazz. I have asked for the IM. (Of course, the next question will flag me as a bunny, but I'll get past the first hurdle initially.)
Hubby suggested we take a look around, which we will do.
I'm interested to check this out, even as an exercise in what to do, and not to do, what to look for etc.
How do I find out what the surrounding shops and offices lease for per square metre?
I cannot find anything about the CBA branch at Holland Park. It doesn't show as having sold, and doesn't seem to still be for sale. Is there somewhere I can find out, or do I just call a few commercial agents and pick their brains?
Hubby suggested we take a look around, which we will do.
I'm interested to check this out, even as an exercise in what to do, and not to do, what to look for etc.
How do I find out what the surrounding shops and offices lease for per square metre?
I cannot find anything about the CBA branch at Holland Park. It doesn't show as having sold, and doesn't seem to still be for sale. Is there somewhere I can find out, or do I just call a few commercial agents and pick their brains?
