Forums / Property Investing / Help Needed! / help me out with some ideas (pretty please)

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  • Profile photo of richmondrichmond
    Participant
    @richmond
    Join Date: 2003
    Post Count: 831

    Hi all,

    I’ve found a property close to Melbourne, good town, good infrastructure etc etc

    It’s a house, where the owner is running a business… he’s got $265k on it, and will sign a 10 year lease with a 5 year option for $460 per week plus outgoings with 3% annual increases.

    It’s a large block, with the potential for subdivision or units down the track…

    I’m going to have a look through on Monday morning… from the outside the house has plenty of street appeal, and it’s close to everything in town.

    Assuming that structurally it’s ok (I will make any offer subject to building inspection as usual)
    my early thoughts are to either get the asking price down to the $250-255k mark and keep the rent as is, or, if he won’t budge on the asking price, get the initial rent and annual increase boosted to say, $475 per week with 4-5% yearly increases

    Another idea suggested to me is to see if he actually needs the whole house to run his business, and maybe look at some complementary services that could rent other rooms.

    Finance is not a problem.

    Any other ideas?

    Cheers
    r

    Profile photo of MonopolyMonopoly
    Member
    @monopoly
    Join Date: 2004
    Post Count: 1,612

    Hi Richmond,

    Am I allowed to ask where near Melbourne???

    Jo

    Profile photo of kay henrykay henry
    Member
    @kay-henry
    Join Date: 2003
    Post Count: 2,737

    Richmond,

    A couple of questions…

    Is it zoned for commercial use?

    Would the rent be equivalent if it became residential use instead of having your current tenant? I ask this because if the tenant’s business fails or there’s some other contingency, and it results in a protracted legal battle… you may end up with a mere IP, rather than what is near to a CF+ commercial property.

    How many rooms is the house? Would the current vendor be willing to share the rooms with another business tenant? I ask this because there might be noise issues, or privacy issues, and the vendor doesn’t want to share.

    You may want to check out the vendor’s financial situation, annual report etc. A 10-year lease is great, but if he is going broke, and that’s why he’s selling up, then it changes the deal.

    Just some thoughts.

    kay henry

    Profile photo of richmondrichmond
    Participant
    @richmond
    Join Date: 2003
    Post Count: 831

    How weird is this?

    My wife and I just went to the vet because one of our cats is sick…

    Anyway, I got talking to a lady in the waiting room and it turns out she and her husband were in the same business as this chap, and they owned the property in question… they sold it to the current owner 5 years ago for $225k…

    They are still in touch with the current owner, apparently he’s selling because he wants to open another outlet in another town… this makes me think that the option of starting off with increased rent is the one that he’d go for, because he’s selling to raise some capital for expansion.

    It’s zoned residential, and even though it’s one of the oldest houses in town, the previous owner reckons structurally it’s good, and as I said, it’s in a sensational location…

    Nice to have the info up my sleeve for the meeting with the agent.

    Also, talking to other people it seems the business isn’t failing… he’s the only one in his field in the region and does a roaring trade…

    cheers
    r

    ps monopoly, naming the area this place is in could leave me open to someone cutting my lunch, so sorry, I ain’t telling. no offence.

    Profile photo of MonopolyMonopoly
    Member
    @monopoly
    Join Date: 2004
    Post Count: 1,612

    None taken Richmond, besides I wouldn’t want that to happen, you never know what you gonna get in your sandwich !!!! [laugh4]

    Seriously, sounds like fate is smiling down on you, and you are definitely meant to have it!!! Good for you Richmond; I hope it all pans out well. Please do keep us informed; sounds like a fantastic opportunity!!![thumbsupanim]

    All the best,

    Jo

    Profile photo of richmondrichmond
    Participant
    @richmond
    Join Date: 2003
    Post Count: 831

    gee not too many ideas except for kay’s… I would have thought there’d be a few more… maybe people are out there trying to track this place down hehehe

    cheers
    r

    Profile photo of kay henrykay henry
    Member
    @kay-henry
    Join Date: 2003
    Post Count: 2,737

    Awww, richmond- and mine weren’t even ideas- they were just questions. We’ll keep this little fella up the top so people can answer ya :)

    kay henry

    Profile photo of yackyack
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    @yack
    Join Date: 2003
    Post Count: 1,206

    I agree with Kay.

    If its zoned residential, and they do leave and the surrounding properties ie. residential only sell for $150k or less then you paid you are open to loosing money down the track.

    If the surrounding properties sell for what you pay then proceed. Dont mix up a commercial property with a guy who works from a residential house.

    Profile photo of kay henrykay henry
    Member
    @kay-henry
    Join Date: 2003
    Post Count: 2,737

    richmond,

    Dunno if you’ve seen the article in the most recent API mag. It’s on the kind of project you’re doing- it’s an article on commercial RE, but lots about small businesses, and “retail” type tenants. Lots of case studies, and mention of how such leases need to be structured. Also info about the kinds of people purchasing these properties, and how they’re quite competitive to come by- often lots of city people bidding for them. People are often purchasing for CF and not CG.

    If ya haven’t read it and you want to check it our before your inspection on Monday morning, let me know and I’ll fax it to you.

    kay henry

    Profile photo of MonopolyMonopoly
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    @monopoly
    Join Date: 2004
    Post Count: 1,612

    Hi Richmond,

    Just a quick addition to Kay’s and Yack’s comments re the residential/commercial questions. My concern would be the “public liability” issue as it is a commercial business run from a building which is zoned residential. Is the council aware of this business??? They may not be, and if customers do not set foot on the site, it is not an issue, but if they do, I would do my homework and make sure that (in particular) as the landlord, you are adequately covered, and everything is in line with both council and insurance regulations. I think this is partly what Kay/Yack were also referring to, but just in case, I thought I’d spell it out a bit better. Councils can and do, shut down commercial businesses run from residential (zoned) properties, in order to guard against the likelihood of any public liability prosecution.

    Cheers,

    Jo

    Profile photo of richmondrichmond
    Participant
    @richmond
    Join Date: 2003
    Post Count: 831

    well, made my offer yesterday morning of 260k with a 10 year lease starting at 475pw, subject to the usual stuff (building inspection etc)… it was all looking good, and the agent reckons the vendor was going to accept, before a late appointment for someone else to look through this morning, so the vendor decided not to make a decision until then…

    anyway, this morning’s intrepid investor offered asking price on the spot ($270k plus $460 pw rent) unconditionally… so I dipped out, but not to worry… it was a good deal, but not the best one I’ll come across…

    Cheers
    r

    Profile photo of MonopolyMonopoly
    Member
    @monopoly
    Join Date: 2004
    Post Count: 1,612

    Sorry to hear the bad news Richmond; it’s nasty thing to happen especially if you have your heart set on it. Oh well don’t worry, I’m sure an even better deal will come along, and it has your name on it!!!

    Maybe you should have tried making your offer based on the promise of not being gazumped; it seems to work for some!!!

    Jo

    P.S. Sorry Richmond, I misread that the REA accepted the offer on behalf of the buyer, and later came back at you with the bad news. In which case, maybe you should consider trying that aforementioned strategy in future, just to be on the safe side.

    Profile photo of brahmsbrahms
    Participant
    @brahms
    Join Date: 2004
    Post Count: 485

    interesting post Richmond – utilizing the usual 20:20 hindsight – just how healthy was the local economy, commercial vacancies in the ‘cbd’? strip shopping centres? etc etc.

    was it realistic to seek/believe that a zoning change was feasible? if it was already in place thats aok…its hard to piece all the parts via the forum – you know what i mean.

    cheers brahms

    Profile photo of ADAD
    Participant
    @ad
    Join Date: 2002
    Post Count: 636

    Bummer Richo. Sorry to hear the bad run….we must catch up soon.

    Enjoy
    AD [:o)]
    (Andrew)

    “Work joyfully and peacefully, knowing that right thoughts and right efforts inevitably bring about right results.”

    Profile photo of kay henrykay henry
    Member
    @kay-henry
    Join Date: 2003
    Post Count: 2,737

    richmond said:

    “the agent reckons the vendor was going to accept, before a late appointment for someone else to look through this morning, so the vendor decided not to make a decision until then…”

    richmond did not get gazumped, because there was no offer and acceptance- only an offer.

    kay henry

    Profile photo of MonopolyMonopoly
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    @monopoly
    Join Date: 2004
    Post Count: 1,612

    Point taken; my mistake….I have edited my post accordingly.

    Profile photo of PepperPepper
    Member
    @pepper
    Join Date: 2004
    Post Count: 48

    Hey richmond thats a real bummer!!!

    I know how you feel though my offer fell through also even though agent reckoned it was a sure thing and that the sellers were desparate for a sale!!!! Guess they werent that desparate after all coz they decided to rent it out instead!!!! Not to worry maybe next time hey???? [biggrin]

    Pepper

    Profile photo of AceyduceyAceyducey
    Participant
    @aceyducey
    Join Date: 2003
    Post Count: 651

    Too bad Pepper, it happens.

    Maybe the agent was stretching the truth a bit about their desperation.

    Good luck with the next one!

    Cheers,

    Aceyducey


    In theory, there is no difference between theory and practice. But, in practice, there is.

    – Jan L.A. van de Snepscheut

    Profile photo of Henry_84Henry_84
    Member
    @henry_84
    Join Date: 2004
    Post Count: 10

    Pardon my ignorance but what does it mean to get gazumped?

    Profile photo of kay henrykay henry
    Member
    @kay-henry
    Join Date: 2003
    Post Count: 2,737

    Henry,

    Here’s a meaning from the ABC’s “word of the day”, which includes the origin of the word:

    Gazump

    Kel Richards writes

    The word gazump basically means to cheat or swindle in some way. It’s most commonly used in real estate deals. One form of gazumping involves accepting an offer on a property, and, before contracts are exchanged, going back to the young couple who think they’ve secured the property, telling them you’ve had a higher bid (this being entirely fictitious), and, unless they match the higher figure they’ll miss out. The more common form is to accept an offer, receive a (genuine) higher offer and dump the first buyer (with whom you had a handshake deal) without sorrow or ceremony. There appear to be lots of different spellings and pronunciations for this word: gazump, gessump (with an “e” instead of an “a’), gasumph (ending with a “ph” instead of a “p”), gazoomph (with a double-O instead of a “u”) and so on. It appears to come from a Yiddish word “gezumph” meaning “to cheat or overcharge”. It first turns up in English in the 1920s (the earliest citation being from 1928).

    http://www.abc.net.au/classic/breakfast/stories/s848907.htm

    kay henry

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