NZ Over the ditch 10pc + NET YEILDS

Discussion in 'Where to Buy' started by Beano, 6th Sep, 2016.

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  1. Player

    Player Well-Known Member

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  2. The Y-man

    The Y-man Moderator Staff Member

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    @MTR,


    As an example, you would probably know Box Hill (Vic) - if you have been there you would probably have seen the 16 story ATO building that was recently built by Cromwell.

    The minimum investment into the venture was $10k.
    Definitely NOT risk free BUT things to consider:
    - Was it any more riskier than a $500k standalone CP deal?
    - As a developer, think of what was at play here: a big block of land in central Box Hill (across road from Box Hill Central), a building specifically built and fitted to ATO requirements, a long term ATO lease pre-signed prior to build, a tenant that is pretty much recession proof.....

    What could your $500k have done? ;)


    Case Study: Cromwell Box Hill Trust | Cromwell

    The Y-man
     
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  3. willair

    willair Well-Known Member Premium Member

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    Thanks for the link..
    upload_2016-9-7_9-11-55.png
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    @willair - how does CMW track against the asx for the time frame?
     
  5. The Y-man

    The Y-man Moderator Staff Member

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    @willair,

    Just be aware the ATO Box Hill trust was a single building trust, and technically not part of the CMW portfolio.

    The Y-man
     
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  6. willair

    willair Well-Known Member Premium Member

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  7. MTR

    MTR Well-Known Member

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    Hi Beano
    Are most in Brisbane?
    I did pm you:)


    Cheers
    MTR
     
  8. The Y-man

    The Y-man Moderator Staff Member

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  9. D.T.

    D.T. Specialist Property Manager Business Member

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    I think even that is a bit of a stretch given some of the questions he was previously asking and unfathomable info he refers to.
     
  10. Chabs

    Chabs Well-Known Member

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    So after some mentioned that "affordable for mum n pa" prices means less opportunity. What would you guys say are good numbers to aim for before you would be able to find more attractive CIP opportunities?

    1. How much $$ cash or equity saved up and ready to pay for a deposit? (e.g. $1 000 000 ready for a deposit)
    2. What sale price points for property? (e.g. a $1 000 000 down gets approx a $3 000 000 property)


    And what are other things to aim to have?

    I also often wonder how CIP is so good when banks are notoriously strict with regards to how they value and securitise CIP.

    I aspire to be where you are at Beano :)
     
  11. Whiteman

    Whiteman Well-Known Member

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    Im happy to run through one of my recent ones around the $1M mark if its of interest.

    Purchased May 2016 price $1,070,000
    Corner store on its own (410sqm of land) off the main shopping drag in one of Hobarts best suburbs in very close proximity to the CBD with surrounding houses in $600k-$800k mark and a relatively high disposable income. Current rent $84921 with lease running through until 31 Dec 2019 so nearly 3.5 years remaining. Personal guarantees a very busy little business with the shelves fully stocked, good reviews online. A smart person could probably work out what i bought and i could post photos but i don't feel that level of detail is necessary and out of respect for the tenant i don't, the numbers are the important bit.

    Risk on the property??? Initially i thought if i lost the existing tenant you could get an upmarket cafe in there like you see around Brighton Vic where i live and sydney etc with tables and chairs outside and take home meals for at night, then i got down there and remembered its tassie, its freezing outside for 11.5 months of the year. But i sat out the front of the place for an hour and watched the flow of customers, its near the university it has a steady flow of traffic past it and back to the original point, its tassie the weather is frequently miserable, if you're on your way home from work its ******* down and cold and dark, you need something for dinner or a few extra ingredients are you going to woolies parking 100m from the door in the cold and the rain or will you pull up at this place with ample 15 min spots out the front ad pick up your necessities and be in and out 5 mins and pay the premium? Been a corner store since the 1920's and didn't look like it was changing anytime soon.

    Settled August 2016 price $1,055,000 (discount for roof repairs required of $25k identified by building and pest and negotiated down by BA)
    Oncosts (all costs excluding GST, no GST on purchase as "going concern")
    BA $5900
    Conveyancer $1550
    Stamp Duty $42660
    Deprec report $1000
    Trust structure and Accountant $1500
    Build and Pest $520
    Valuation $1500
    Bank charges $500
    Roof repairs (estimate) $25000

    Total purchase cost $1,135,130

    Current rent $84921
    less annual expenses estimates
    Building Insurance $2500
    Mgmt $4670
    Accountant (Qtly BAS and annual return) $2500
    ASIC $250
    Maintenance estimate $2000
    bank charges $500
    land tax $NIL (paid by tenant)

    Net rent $72,501

    Actual net yield on purchase price including all expenses $72,501/$1,135,130
    = 6.48%
    Its only going through this exercise you get the real number and i hadn't done it before now and its easy at the time to look at the rent divide it by the purchase price $85k/$1,055k = 8% yield and think at the time you're a property genius.

    Regarding the finance, this property was purchased with equity from other properties but mostly my PPOR is on the line. I tipped $58,000 into the deal and secured the property with a $50,000 deposit and put an additional $8000 into the company account to cover sundry expenses until i was collecting some rent.

    Interest only on loan of $1,055,000 @ 4.2%
    = $44,310
    + reset fees p.a. for Market rate loan facility $600
    total $44,910

    Net rent $72501
    - interest $44910
    = $27591 per annum profit

    And i didn't realise it at the time but the sale included all of the plant and equipment, so fridges, coffee machine, display cabinets, shelving etc etc because i bought it off the original shopkeeper that leased it out to the current tenant so there should be some reasonable depreciation left. I don't have the report to hand as yet, but I'm hoping i won't be paying tax on the profit for a few years yet.

    Cash on cash return?
    $27591/$58,000 = 47.5%

    But its at a 100% LVR and interest rate changes or a protracted loss of tenant and the strategy falls over very quickly. Im fortunate that i have a good cashflow business that allows for such problems if and when they come up, and they have, I've made plenty of mistakes.

    Summary, I'm happy with the purchase, no regrets at all, ill probably hold it until i shuffle off and the rent will slowly increase over time and keep putting money into the account. Profits will be put back into the principal each three months as the loan rolls over until i need to live off them.

    Hope the info helps
     
  12. MTR

    MTR Well-Known Member

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    Me too.
    Keep posting Beano, I am on L plates...and want to learn
     
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  13. MTR

    MTR Well-Known Member

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    Thanks for sharing
    You have good back up
     
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  14. Whiteman

    Whiteman Well-Known Member

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    A comprable sale in the near vicinity with a fit out $150k better on 2/3 the land parcel and $90k rent had sold about 9 months previously for $1.2M and the market had moved since then, it was purchased by Salamanca Fresh. BA's initial estimate was $1.1-1.2M for my property
     
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  15. Scott No Mates

    Scott No Mates Well-Known Member

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    @Chabs - If they were cheap and easily understood, everybody would have one (CIP), just like a business - not everyone has one of them either.

    Most people live in a house/unit/gf/th/villa/cardboard box /cave/hole in a tree trunk etc so perceived risks to banks is very low, they'll let anyone (within reason) borrow money for a roof over their heads, its the last thing you let go of when going broke.

    Whereas CIP aren't required by everyone, the pool of prospective tenants is smaller as not everyone has a business. Not all businesses are profitable with a high failure rate.

    Sub $2-3m is generally mum and dads/smsf
    $3-10m too small to worry about (for fund managers)
    $10-25 - Syndicates
    $25+ open slather
     
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  16. The Butler

    The Butler Well-Known Member

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    Great post Whiteman - lots of good pertinent info. Thanks.
     
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  17. Scott No Mates

    Scott No Mates Well-Known Member

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    @Whiteman - is that interest rate on bank bills or a loan facility?
     
  18. The Butler

    The Butler Well-Known Member

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    @Whiteman
    I notice you used a BA. If you don't mind me asking...
    Was this a BA that specialises in commercial only?
    Were they local to the property and you engaged them after you had already decided on Tassie/Hobart, or were they elsewhere and suggested Tassie/Hobart/this particular property to you?
    I note the fees of only $5,900, approx 0.6% - what level of service (ie search, negotiate etc) did they provide for this level of fees?
    Were you happy with the process/service?
    Would you use one again?

    Thanks in advance
     
  19. Whiteman

    Whiteman Well-Known Member

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    The CBA calls it a Market Rate Loan facility or MRL (and please excuse me I'm sitting at a bar on my pat on Catalina island whilst the GF has a stomach ache, which is why had the time to detail as above, but if i had access to my paperwork i could give you a more detailed answer, happy to provide later) there are three charges but it resets every three months to the BBSY plus an additional interest rate plus a reset fee($150 per loan per qtr) ...so BBSY 1.78 plus 2.2 interest rate plus the $150 ... i have a great relationship manager at CBA if anybody wants a referral? Bankwest were so full of BS but my guy returns phone calls does what he promises ... "i can't promise you an approval but ill give you an answer in 48" .... Jamil Ajouri best RM at CBA
     
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  20. Whiteman

    Whiteman Well-Known Member

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    Hi
    Hi Butler
    i had already targeted the property, no he was not commercial only, but i was confident in his ability to read the market and provide comparables that supported offer price.

    I have never regretted using a BA, they smooth the transaction and give you peace of mind. On this purchase it was Rob Zubin of My Property Hunter. Engage a good BA and you know you will pay no more than market, possibly less. If you're playing in an interstate market BA fees are cheap compared to a mistake.
     
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