46pc of the net rent is pure profit

Yes land tax is usually included
My last deal i had offers of 4pc for commercial finance
Its lower now

 

If you develop you can get it.

I will get 6.5% on H&L off my cost base. And on two about to be tenanted I should get 8% as I developed the land as well.

 

I sort of switched to land only (lessors interest) now (although i still have the conventional properties) so they are pretty boring investments
You get more action watching the grass grow

 

Do you mean land banking, @Beano?

 

No i have tenants who own the buildings
They just lease the land from me

 

Ah, ok.

Interesting setup. Would be really interested to hear more if you ever wanted to share (eg how you came about doing it, the process and structure of your setup etc).

 

I beleive so but you really need to talk to the real eastate agents

When I first went into Commercial (1994) it was in partnership (held in a limited liability company) so we could buy properties we could not afford in the individual capacity
(Gradually I brought out all my partners).

The lowest price commercial I brought in the last three years would be $25k (carpark)

One concern investors have is the vacancies of commercial that can be rather lengthy but when you have a reasonable number of tenants the vacancies are similar to the sector you in (eg 5pc) and that can be easily factored into your calculations (and absorbed into the total revenue)

My recent vacancies (the last 4 all filled in the last month ...I usually lose and sign up a tenant every month) have resulted in 10pc to 30pc rental increases I would never have been able to pass these increases to existing tenants! ....so good can come from vacancies.

 

Did you get limited recourse debt in your LLC to buy commercial property? What sort of LVRs can you get with limited recourse?

I have been considering buying properties with family in a limited recourse structure that doesn't affect inidividual serviceability. Is this possible?

 

I

There is full recourse on all my loans
If the investments fail I lose everything
My ex-partners were released from their personal liability two years after they sold (to me)
One of my ex-partners ran out of money so I was forced to cover 100pc of all the cost

 

Sold for 1.985m

 

Thanks for insights @Beano . As you build your portfolio and can show the bank reliability, do you get more attractive %'ges on the money? The low 4% interest rates are very low for commercial.

Is it because you put up more than 30-35% equity?

 

No just the standard 30pc equity commercial
No not a large loan just $25m

 

Here's a small cap returning 24% pa (for 2 years), small investors with $1.5M (offer expires 9/9/16)

Linky

 

Where does one look for sub 4% commercial property loans. It sounds like a very good deal. It also sounds like excellent opportunity if you can reliably get residential level commercial loans, the cashflow is excellent.

 

Please excuse the naivete, but with something like this, what is the catch? What would be the risks, apart from the commercial tenants defaulting? Why wouldn't the director self fund anyway? Why wouldn't they go private investment through their network if its a good one?

Pretty sure there are a lot of investors who would love a 24% "guaranteed" return.

 

@Chabs - this is probably the most effective way to finance for the developer as they have the option to get finance through other means if this doesn't come off.

They would have calculated their WACC under both finance structures, the amount of their own security required and risk associated with the project.

It is more beneficial to the developer to pay a high rate of return for 2 years & refinance than to stump up and meet the bank's lending criteria.

You need to read the PDS to understand the assets and risks of this type of investment. Due to the nature and size of the investment required it is deemed for sophisticated investors.

 

If you want
No Land Tax
No Capital Gains Tax
No Stamp Duty
Pay plenty of Company Tax of 28% (due to the big Margins!)

61% of the rent is PROFIT!
25% profit on your capital (on 4 Button Lane)

Then look over the ditch before the 10%+ NET YIELDS

AUCTION Bayleys

4 Button Lane
Porirua
$350,000 10.29%

AUCTION
26 - 30 Birdwood Street
Featherston
$500,000 10.20%

 

The interest is calculated at 4% floating (based on the Westpac rate)

 

Is that a commercial bill? Do you then need to roll that every 180 days

 

In NZD not AUD so you also have to factor in currency risk.