Strata Titling and Valuation

Discussion in 'Commercial Property' started by Melbpositivegeared, 22nd Mar, 2016.

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  1. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Hey guys,

    I've come across a block of 8 units that I can pick up at a pretty good price (great yields anyway). They are not strata titled and I don't know that they have the ability to be.

    The only comparables I can find are either brand new units, or already strata titled units.

    If I can pick up a set of 8 units at
    $100k a piece, knowing that they would go for $200k if they were able to sell individually (according to comparable sales) is this a good price? Ie- Is a commercial valuation likely to come in on the money.

    Is there anything else I need to consider?

    Or effectively- What valuation figure am I sacrificing by not strata titling?
     
  2. thatbum

    thatbum Well-Known Member

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    ...piece of string...

    Seriously, there seems to be a lot of unknowns here for you. Your question seems pretty useless without trying harder to lock down some of the important unknowns in your DD.
     
  3. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Just looking
    Just looking at what I need to consider to narrow this down - They're the facts I have so far and I'm not certain how to narrow it down without putting my finger on the deal and a loan application in (With decent exit clauses). Any other ideas on how to answer this?
     
  4. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    You'll need to find out the answer to this or you'll get nowhere.

    These are not comps. You'll need to find comps of similar blocks of un-strata'd units for true comparables.
     
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  5. Ace in the Hole

    Ace in the Hole Well-Known Member

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    What are your goals with this property?
    If they were worth 200 each and you can get em for 100 in one line, the yields would be pretty good, especially at that level.
    If you were holding, holding costs are much lower too if not strata.
     
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  6. thatbum

    thatbum Well-Known Member

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    I've done DD on this sort of deal before. My strategy was to buy, strata, and then sell off some / release equity.

    I spent the bulk of my time figuring out the requirements and costs to get the place strata'd, as well as finding comparable sales to get as accurate an idea as I could of the end value of the individual units.

    Meanwhile I pretty much had to resign myself to the fact financing the deal at first instance was going to be at crappy rates and crappy LVRs.

    Anyway that's just an example of my thought processes which may or may not apply to your situation or strategy. I don't think you've actually stated your strategy yet...?
     
  7. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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  8. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    My plan is to vendor finance the lot, (or at least the deposit) strata into at least 2 lots of 4 to get into residential lending rates, renovate, then sell off half and own the other half at what I believe will be 30% LVR.

    I'm still working on if I can borrow above 60% on this one... With renovations there's a fair amount of cash required up front too. Vacancy rates are low, yields are very high. Owner open to terms.

    Cannot find comparable sales of multi unit sites... Will get a val done to finalise strategy
     
  9. apk

    apk Well-Known Member

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  10. Kate Moloney

    Kate Moloney Well-Known Member

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    You need to find out if they can be strata titled.

    Things to look for: fire walls between the units, seperate meters for electricity and water, what are the council requirements for strata titling (regional councils can be kinder than metro), one big thing to look for is the parking requirements if strata titled - for example, some councils will require visitors carparks and turning circles.

    Some other things to consider will be surveyors costs, legal costs, set up of the body corporate & sinking fund .... plus any costs you may incur to upgrade the building to meet council requirements.

    Bear in mind that depending on the number of units there are in the unit block, you may need to refinance to other lenders at the end of the exercise due to LVR restrictions and some banks not wanting to finance an entire unit block.
     
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  11. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Watch this space! Solicitors on both sides have agreed, sellers bank has agreed, just waiting on some final figures and it's mine with 8 weeks DD
     
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  12. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Just got this under DD now after some very loooong negotiations.
    No money down, settle in 2018. In the mean time strata title and renovate. (I hold a commercial lease and power of attorney once we go uncon)
    The building inspection suggests a lot of work and I'm getting quotes together.
    Income is looking significantly higher than anticipated, uplift in equity slightly less than my initial thoughts due to the amount of work requited but still quite strong. Council seem very supportive of my plans to date
     
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  13. Perthguy

    Perthguy Well-Known Member

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  14. lixas4

    lixas4 Well-Known Member

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    Congrats!

    Once you go unconditional would love to see some pics/plans/costs/issues/council/subdivision/services/ etc. Anything your willing to share!
     
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  15. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    A fair way down the track now!

    With valuations in the area being very inconsistent (and very rare) for single units and these units being much smaller than any comparables I've decided to hold off on strata titling (New plumbing, capping the brick work to reach the roof between units and probably a new roof while I'm at it, new water metres and the need to re-home or kick out 1 half of the tenants at a time to do this properly.)

    At the same time there's been a bunch of comparables for unit complexes come in over the last 6 months suggesting a 10% yield (and sometimes less - Less is more when looking at end value!).

    I'm renovating 1 by 1 and having just completed my first I've updated the plumbing so that if I do eventually strata this unit is prepaired.

    The cosmetic reno was cheaper than expected (At only $5500) and ran faster and easier than I'd imagined.

    The plumbing was $3k - Not sure if this spend was smart and in future renos I will keep all plumbing where it is as plans to strata are unclear.

    The yield also surprised me, getting much better rent than anticipated.

    So the numbers are:

    - Purchase price: $480k ($35k deposit, remainder due 18 months later)
    - General maintenance: $20k (Stoves, aircons, locks... this place hadn't had any maintenance done in the last 10 years)
    - Renovations: $65k (Projected figure after first one ran well, also complex to be repainted and new fence)
    - Holding costs inc agents fees, council rates, insurance: $12k (The building was almost empty when I purchased it - it has now ticked over to positive with the complex almost full bar the next unit I'm about to renovate - there should be no further months run at a loss)

    - Renovated units rent at $240pw - Huge need for short term accomodation in the area if I wanted to increase this further.


    To sum this up:
    Total spend inc all costs: $577k
    Rental income post reno: $99,840
    Expected valuation upon settlement date: $998k

    What this means is on the day I settle I should not have to put any further cash in (and may even be able to draw some out) I should have created over $400k equity once stamps are paid and have a passive income of $40k pa.

    I started with my $35k deposit and no serviceability.

    The bad reputation of this block has changed significantly with the new tenant's in place and will continue to do so as I renovate the external building, add a fence and rename the complex.

    Thanks to everyone who's offered me help and advice along the way.
     
  16. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    I'd like to point out that I'm aware my reno costs are low. I do a lot of the work myself and hire local trades cheap through Facebook groups and airtasker - I always check my electricians and plumbers however everyone else comes from recommendations through the local community.

    While my numbers above are run to a tight budget I believe it's feasible and has worked so far- however there's plenty of buffer room from my expected equity gain if I do run into any unforeseen issues.

    The end value may come in less with this block holding a bad reputation from previous tenants and no maintenance being done over the years.

    A full strata title will probably cost an additional $100k however it has the potential to add a further $200k-$400k or so to the end value. (Comparables are scarse) - Council rates go up less than $2000pa for the lot.

    It's something I will strongly consider once the block is officially owned by me.

     
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  17. Scott No Mates

    Scott No Mates Well-Known Member

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    What's the market for furnished short term rentals?
     
  18. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Lots of need in the area - Tested it with ads and had huge demand
     
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  19. Archaon

    Archaon Well-Known Member

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    Any pictures of one of your Reno'd units?
     
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