Forum Replies Created
- trakka wrote:My personal favourite strategy is to have both
by manufacturing growth and increasing rental return after purchase. True, it's not easy, but if you look at enough properties and if you even find one per year, you'll be on the road to wealth. I do believe the commercial arena provides more opportunities for using this strategy, and you don't necessarily need big bucks.Just this month I've negotiated to purchase a property with the following numbers: purchase price $600K, vendor finance $150K (25%, 9% interest payable monthly, balloon payment at 1 year), yield at settlement 9.5%. The yield is high because the property is specialist and commercial properties usually get more rent in their specialist capacity than they would as a general property (ie a space usable for a variety of uses). So the logic in pricing it was that if properties in the area yield 7.5% (it is a regional area), then this one (being specialist) was capitalised using a higher yield because of its specialisation, and that's how the vendor and agent came up with the asking price.
The really fabulous twist, from my perspective, was that the selling agent and/or vendor didn't know enough about other commercial rents in the area. My research revealed that if the specialist fittings were ripped out (which can be done quite easily), I'd actually get more rent as a warehouse than in its current specialist use – ie the current rent is significantly under market.
So the real market value of the property is actually about $800K. I took all the figures to my lender, who will only lend on purchase price at settlement, but agreed that in a year's time, when my vendor finance becomes due, they'll lend against the value as a warehouse – which should mean I can pay out the vendor finance without having to put in any cash.
Therefore in 1 years' time, I'll have a 100% financed property, still slightly cashflow positive, and becoming more cashflow positive each year. I believe that it will have some good capital growth because of some development in the area, but even if it has no capital growth – I've put in no money, it's not impacted my servicability one iota, it pays for itself, and in time the positive cashflow will be significant.
Now, off to find some more of those deals….
Hey trakka I'm fairly new to the IP arena can you please explain when you talk about vendor finance, ballon payment 100% finance, it being monthly payments yet your not putting any money in?
I understand the bank see the potential it has as a warehouse its just the middle part that you lost me!
Love to learn more
nejas
by manufacturing growth and increasing rental return after purchase. True, it's not easy, but if you look at enough properties and if you even find one per year, you'll be on the road to wealth. I do believe the commercial arena provides more opportunities for using this strategy, and you don't necessarily need big bucks.
