Trouble Free Investments

Interesting comment from Ken Woodley (Metro Property co-founder)
"with shopping centres you're dealing with multiple businesses and co-ordinating a number of tenants" Mr Woodley said. "But I'm only dealing with one company for each of them. It's absolutely trouble free"
His Net yield range is 5.75% to 7% over his three Service Stations (Virginia, Holland Park and Sherwood Court)
This one has a 15 year lease with all outgoings except Land Tax

ps I see his point . I spend more time on my tenants paying me $50pw than the one paying me $1m a pa!

 

Is totally true Beano -works well most of the time!
-until the unlikely event the big tenant tries to get out of the lease early or something.

I have a close friend who leased to caltex for 20 years ,but when they left ,
it came out that they hadnt honored the lease (as they were supossed to have the tanks checked/maintained for leaching etc but never did.)
-The neighbors complained as there was petrol in his dam -and the fun began!
The big players have the resources to keep stretching out the small players
- subsequeantly my friend settled and demolished the servo.

 

Lenders generally find petrol stations as poor quality security and will either not lend to them at all, or at greatly reduced terms.

The main reasons behind this are the EPA issues, specialised security with limit other uses for lease and the large consistent decline in the number of petrol stations over the last three decades. (there are lots of empty and now demolished petrol station sites which cost too much to be re-mediated to alternative use)

 

Good point Luke
I will make sure my tenant honours the lease (and enforce the maintenance of the building if need be) to avoid having a derelict building left on my site in the event the lease is not renewed.

 

Is "net yield" after interest or not? If not, doesn't sound that impressive.

 

Hi Spludgey ,
Net yield is referring to the property deal itself,Not the way you finance it .
Meaning different people will have a different interest cost on each deal,
;so no yr interest costs come out of the net yield.

 

That's what I figured, I just thought that <6% yield was quite low for commercial IPs. This would mean that you're not making any money on the proportion that's mortgaged, as interest rates would be roughly the same, wouldn't they?

 

<6% implies less risk or overpriced - I have seen buildings sell below 3% to mum and dad investors with $ in their super funds.

 

6% is close to interest cost yes,but as scott said some people have different strategys to invest .

 

Initially. But if the yield is that low, the market is clearly rating it at a low risk and inferring the vacancy risk is low - so growth of rents will create cash flow.

No different to all the large swathes of negatively geared properties which yield <4% gross.

 

You're trying to get your tenant to pay $50/week because you put down $250k.

He's getting his tenants to pay $1m/week because he put down $1bn.