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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.
     
    Elives likes this.
  5. Ace in the Hole

    Ace in the Hole Well-Known Member Premium 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.
     
  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...?
     
    House and Perthguy like this.
  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.
     
    Perthguy and apk like this.
  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
     
    Gingin likes this.
  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
     
    House, lixas4 and Perthguy like this.
  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!