Suitable investment size for commercial investments

What was funding cost ?

 

I will PM but sub 4%

 

I have never had problems renting out my little 200sqm office unit.
Close to m5 2 floors.
CG is like most CIP, similar pattern to cockroaches crawling up a wall.

 

The goal is pretty simple...just trying to grow passive income enough so that I can have an early retirement

 

My husband and I did this, 12 tenants renting small industrial units, first few years were hard, however our tenant pool grew and we were never without income and when we sold we had tenants that had been there for over 10 years. We kept our rents reasonable and offered long or short tenancies.Worked for us ...

 

It appears that commercial ips are gaining in popularity! I can't offer any advice, not qualified to do so..but I can share my "experience" though...

In late 2016/early 2017 though, I was very close to buying a CIP (warehouse) in Springvale. 800m2 but 200m2 was parking at the front so leaseable area was effectively 600m2. Brick Veneer built in the mid 80s, concrete was decent inside the building but starting to crumble at the car park. It was also in a one way street but weirdly it wide enough for 2 way traffic but both streets next it and surrounding it are all 2 way. I could not get my head around why it was one way and even got off the car to measure the streets - same width. The owner was keen to move out but was happy to rent it off me for 1 year verbally but no written agreement, I got scared, baulked. It sold for $850K and is renting for $40K, I am aware the new tenant is now on a 5 year lease. Yield: 4.7%ish? I went to Resi IP route which atm on hindsight was a bad mistake!

Since then I've kept an eye on properties nearby Springy ever since but nothing really pops out as good investments. The CIPs (retail plus rooms at the back or top floor) were asking $800-$1mil with returns around the $28-$38Kp/a mark fully tenanted and some were in pretty rough condition.

Generally I find that those multi tenanted ones look good on paper but in reality how difficult would it be to get all the space fully tenanted? Most of them I've come across are also in average/pretty bad condition.

I'm still keen to study commercial ips at the moment but still not educated enough and undecided.

 

An example of 'average/pretty bad condition'
Fully tenanted for a number of years
Sold within 3 weeks of hitting the market

 

4.7% yield seems rather low for warehouses right?

 

Balwoges what's the yield on that one?

 

9% minus PM fees as I managed it myself ...
PS No mortgage on property

 

Nice one! BTW what do PMs typically charge?

 

Stuff I've looked at since 2017:

Retail/Shops:

Somewhat limited use nowadays to find a business to survive outside shopping centres. Yields are dismal, I'd find that unless you find a gem somewhere where for some reason it's undervalued and the owner doesn't know this or can't unlock its potential then I think it's worse than warehouses. It has more

FWIW:

Shop 1 on Springy Road, 200m2, can be developed STCA, sold Mar 2017 for $800K. Shop floorspace is 60m2 with a 2 bedder at the back that possibly can be extended to 3, 2 car parks at the back with ROWY. Total Lease was $30K with the resi at back sold vacant. It's about 1km from the main town centre.

Shop 2: Pretty much similar to Shop 1, same road, but only 500m to town centre/station but on the quieter side. A lot more run down however but has a 2nd storey, sold for $1.2mil Oct 2018. Hairdresser on a 3 year lease for $20K a year. Resi bit is also empty at the time of sale but agent reckons can fetch $15K a yr. 2 bedder.

Warehouse 1: Rented to an Asian grocer on a 5 year lease, 40K a year. 800m2 block, 600m2 usable space. Sold 1.02mil late last year.

Warehouse 2: Same size as Warehouse 1 but has had a better refurb, rented to a mechanic for $60K - quite high sold for $1.2mil but much further from town, about 2kms but close to a "mini"/sub town of the same suburb.

The only "decent" yield I ever came across in the ones I actually visited/seriously considered was in the in an ex warehouse/clean industrial type area in Wantirna South pretty much at the back of the Knox S/C. It was a corner block, 1.000m2 but only 450 lettable, it was divided into a warehouse/front office and a cafe. Total Rent at the time in 2015 was $55K net and sold for $730K from memory so 7.5%? I was outbid at the time and the agent did flag an issue that the cafe was looking to move on at the time but eventually re-signed on. The only real issue I can across that one was that the back of the warehouse back onto the neighbour's (also a warehouse) driveway with the wall serving as the boundary fence so to speak.

Either I have very low expectations or I'm just not looking right, since 2013. I've not come across a single CIP where it's been beyond 5% return. I'd be happy to take 4.7% if I could and the tenant is stable.

 

What's a billion dollars between friends

 

G,day Jacko,
I don't really have a lot of experience, but what I do have is a small factory in outer eastern melbourne. I bought it back in 1997 for not very much. My own business was the tenant till 3 years ago. Since then I have rented it out on a 3+3 lease.
Financially it's been a great little performer. Requiring virtually no maintenance and outgoings paid by tenant, it has quite a good return. It has appreciated very well, but in spurts. No increase for years then an almost overnight massive gain.
It is in a group of 40 factories and there is rarely a vacancy. Perfect for the many one man business out there. If I was in a buying stage of life, I would defiantly consider buying more.
Happy to discuss further at one of the Property Chat get togethers at Mitcham Hotel.

 

Thanks Peastman, very insightful. Would love to catch up given the chance. How often do you all get together at the Mitcham Hotel?

 

Sounds like you are all preoccupied with big deals

So is the next one in mid-Feb then?