Hi, we love residential and haven't purchased any commercial and to be very honest we know next to nothing about commercial investment. The property is currently vacant and needs a really good pull-through. It is large and has really good car parking. We are now in a due diligence phase, what do we need to know? Happy to take advice from people with experience and knowledge. Thanks
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Originally posted by QRM View PostHi, we love residential and haven't purchased any commercial and to be very honest we know next to nothing about commercial investment. The property is currently vacant and needs a really good pull-through. It is large and has really good car parking. We are now in a due diligence phase, what do we need to know? Happy to take advice from people with experience and knowledge. Thanks
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Originally posted by QRM View PostHi, we love residential and haven't purchased any commercial and to be very honest we know next to nothing about commercial investment. The property is currently vacant and needs a really good pull-through. It is large and has really good car parking. We are now in a due diligence phase, what do we need to know? Happy to take advice from people with experience and knowledge. Thanks
Have you checked out the property web sites to see what's leasing/selling and for what at the moment? Trade Me/Real Estate web sites.
However, it is also dependent on the nature of the particular property. How large? What are you to configure it as? Office, Light Industrial etc.? I would avoid retail personally. Have you considered delaying fit out and doing it with your new tenant as they frequently want changes for themselves? I'm assuming you're purchasing as an investment. What part of Frankton? How good is road access? etc. etc. Just because an area is OK does not mean the particular property is OK. Also the standard checks - NBS? Any compliance issues? etc.
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Originally posted by Scouser View PostV However, yields are decent and any property should be cash flow positive even on high gearing.
Buy at say $1,000,000, 8% yield which I presume you would say is OK? $80k rent plus opex, GST.
Mortgage 100%, ie borrow all with security over other properties. Even at 15 years, repayments are $95,000 at 5% interest.
Plus would be a profit so tax to pay.
So why do you say, it would be cashflow positive? I think cashflow is one of the biggest issues with commercial property as you need to repay the loan quicker than residential, and normally banks require 10-15 year repayments.
RossBook a free chat here
Ross Barnett - Property Accountant
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Originally posted by Rosco View PostJust wanted to discuss this point.
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Mortgage 100%, ie borrow all with security over other properties. Even at 15 years, repayments are $95,000 at 5% interest.
Ross
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Some banks will go 100% to owner occupier for commercial
If have other commercial, then you are losing some of their cashflow to fund the new one. So still not cashflow positive
If 35% from residential
650k from commercial - total payments $61,680 at 5% and 15 years
350k residential- 25 years at 4% = $22,164
Total repayments still $83,844
Tax approx $8k - estimated, but roughly right
Rent $80k
Total going out, just over $90k. Still $10k short.
RossBook a free chat here
Ross Barnett - Property Accountant
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Lots - $46k was interest so about $38k was principal.
Not saying the profit is bad, just that the cashflow can be a pain as all the cash goes to mortgage repayments, plus often short and then there is tax to pay.
If you have $350k of real cash, fine. But most people don't have cash and they are borrowing on something else.
RossBook a free chat here
Ross Barnett - Property Accountant
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Thanks Rosco, Scouser and Beano, we will check to see what percentage the bank will give us and see what the refurbishment will cost before we can crunch some numbers. I understand value of a commercial building is often dependent upon the lease, however, I believe a tidy up before leasing would be beneficial (if we did go ahead with the purchase). Once again, thanks for your comments.
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Out of interest was approached to see if I wanted to sell property (as I mentioned I might sell when it was vacant last year). Better price than I expected was mentioned and also did a very short check with another real estate agent and feedback was not a lot available under $1m and yields were being pushed down even further (and thus prices increase) because interest rates look to drop. Must admit I thought we had hit bottom on decreasing yields.
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