Hi
Can I get some advice? I fully own my own home worth $750k, plus a rental property worth $450k.
I had this idea: I use the equity in the above to buy a commercial property worth around $1million.
What I would like to know is:
1 Are there any with long term tenants (say 10 years)
2 What % rental would be reasonable to expect?
If the above works out, is it possible to positively gear the place immediately? (Using the loan payments vs the rental – not taking into account deprecaition and other expenses).
Also, who would be the best people to assist with this? Are there syndicates of buyers in such properties?
Any help you can give would be gratefully accfepted!
Thanks
Stanfordhi,
i may have misunderstood you but you seem to be saying that you would have the mortgages on your home and current property to buy a comm outright.you can only borrow 70% of the value on commercial loans but it makes much more sense to keep the bulk of your equity in your home and mortg the comm.
long term tenants do exist; banks etc but those properties are usually much more than a mill. you have enough equity however, to borrow much more provided the rent meets the repays.
as comm usually pays more than a neutral, with a ten year lease it would be a good option.
i have two commercials, one with 6 tenants and another with a single tenant. the risks are greater but so are the returns. my first property returns 16%. i live above the second one, and the rent is very healthy but the potential is for it to increase to about 15%.
myself and i would be very careful initially. do some surfing, commercials sometimes are surprisingly cheap.
onwards and upwards[8D]
Hi Stanford
Congratulations on owning your own home and rental property.
Unfortunately I am not in the same position as you just yet but my 5 year goal will get me there.
I agree with the idea of commercial properties. I have been unable to find positive geared rental properties. Over the past few years I have been focusing on CommercialRetail Properties. Havent bought any just yet. I have big ideas but no cash.
The concept I have in mind is to find 3 other investors who can each access around $300K. Finance to be sought $2.8 million. Then go to market to purchase 4 properties up to $1,000,000 each.By purchasing 4 separate properties risk is spread.
Projected Rental Postion per property
Rental Income 10% $100,000
Interest 6.5% fixed 5 years 65,000
Insurance 5,000
Sundry 5,000Net Rental Income $25,000.
Lease would be 10 year with 2 10 * 10 options
Rent tied to CPITherefore we have a positive cash flow thogether with Capital growth tied to increases inrental income each year.
Some might say this may not be achievable.But I know of people outh there that have done these type of deals.
Good Luck
Beancounter
Stanford, your feeling of security shouldn’t lie in having a long term tenant so much as in the location of the property.
Secondly, to get a positive cashflow the location is probably second or third rate which sometimes doesn’t make for a peaceful sleep.
Better to create a +ve cashflow by improving a property.
For example by recycling an ex-bank or an ex-hotel into shops.
Pisces133
By the way, Beancounter, you will find 6.5% very difficult to get as an interest rate for commercial. More typically you would expect 7.5%
MJK
I just got a client 6.55% for the purchase of 5 retail shops in semi-regional Queensland… there are good commercial rates out there for strong deals.
Standford, you may want to consider financing the purchase of commercial through a combination of residential and commercial finance (this would achieve the lowest cost).
Perhaps see my article on commercial finance in API (http://www.prosolution.com.au/ps_docs/prosolution_doc081903_180049.pdf) – may take a while to load if you are on a dial-up Internet connection.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.au
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