Residential Property Investment

[SauRoNZA]

Something didn't seem right with me and thus why I asked you guys.
You make a good point, just heard 1 tenant has just left and with lease renewals only happening in the next 2 months. A lot more could be leaving.

Partners are convinced that that this will inject a "decent" amount of funds and I'll be honest. There are not alot of places like this. (Not sure if that's a bad thing tbh)

Do you rent the premises for your offices?

If so wouldn't it make more sense to buy your own offices instead then?

Or buy a property where you could have offices and let the others.

 

[Pho3nix]

You said:
"Monthly rental income of R112k and Expenses of R31k excluding the bond "
Which implies a profit of R81k
but then:
"The income from the property currently covers all the other expenses and has a R43k profit coming off"

What is the net, R81k or R43k?

If it is R81k then all expenses including interest is covered from day 1 - very good investment based on info given.

I also have serious reservations about signing surety for a co's debts.

Actual Figures :

Total Income : R111 937
Total Expenses (excl current bond) : R 30 124,09
With Current Bond : R61 058.84
Nett Return : (R111 937 - R61 058.84) = R80 878.16

 

[Pho3nix]

Do you rent the premises for your offices?

If so wouldn't it make more sense to buy your own offices instead then?

Or buy a property where you could have offices and let the others.

Currently we rent virtual offices for use when we have meetings.
I see your point though, will bring this to the table.

 

[AlphaBravo]

Actual Figures :

Total Income : R111 937
Total Expenses (excl current bond) : R 30 124,09
With Current Bond : R61 058.84
Nett Return : (R111 937 - R61 058.84) = R80 878.16

How will you be financing the renovations? If financed through a bond then your income must go up accordingly to net the same return (obviously).

Also you must consider your reason for investing in this property i.e. Long term rental (passive) income - lot of management costs OR renovate in order to make profit on capital. Two different approaches that will effect the amount and strategy on how you want to invest.

 

[Pho3nix]

How will you be financing the renovations? If financed through a bond then your income must go up accordingly to net the same return (obviously).

Also you must consider your reason for investing in this property i.e. Long term rental (passive) income - lot of management costs OR renovate in order to make profit on capital. Two different approaches that will effect the amount and strategy on how you want to invest.

Idea is passive income. Included in the expenses is a a management fee for a company that deals with the tenants. Security company and care taker.

 

[SAdata]

112k rental per month x 12 = 1.34 million a year. On a property worth 6m. This is a 22.4% gross yield. Something is not right. No one in property is getting a 22.4% gross yield. If you get 12% be happy.

"From my stand point, the purchase price is too high and that's why I'm *assuming* it's still on the market" - this contradicts everything you've said...

 

[Pho3nix]

112k rental per month x 12 = 1.34 million a year. On a property worth 6m. This is a 22.4% gross yield. Something is not right. No one in property is getting a 22.4% gross yield. If you get 12% be happy.

"From my stand point, the purchase price is too high and that's why I'm *assuming* it's still on the market" - this contradicts everything you've said...

Elaborate on the last bit please?
Mentioned the place is a fixer upper. Thus why I feel R6mil is a lot of money for it. R4m might be more reasonable in my book.

As for the figures, PM me if you would like to see the financials sent to me. That is what I was told and given. Have nothing to contradict this at the moment.

 

[noob_saibot]

The best way to con a man is to sell to him his greed...

Think of it this way:

I own the property, I have a R4-6million rand asset. My expenses only come to R30k and I'm pulling in R120k, why would I sell this property when there's a tidy R90k profit I am making MONTHLY.

You've mentioned that you don't know much about the industry, which is the first red flag.

The second red flag is that lease renewals are coming up, so it looks like the owner is trying to cash in at the top end as he/she expects leases to not be renewed or renegotiated at steep discounts.

Third red flag is that you didn't mention anything about getting an independent valuation or getting an inspector to evaluate the property (it could be an unstable structure that may collapse anytime).

There's too many factors you haven't considered or are out of your control. You're also increasing your risk exposure beyond 100% by standing as a joint surety to a bond on the property.

Of course, everything I say may be utter bull and this may be a great deal you have on offer, so the risk is yours.

As far as what to do goes, I would follow the suggestion of rather buying offices for your own company first and letting out to other smaller tenants (if there is space).

Diversifying from technology to real estate could be equivalent to saying that your zip-producing factory would like to diversify into the abbatoir industry (there is no direct relation between the industries, so you're not capitalizing on any known flaws in related industries and you're setting yourself up to get eaten by guys who know that industry).

 

[SAdata]

Elaborate on the last bit please?
Mentioned the place is a fixer upper. Thus why I feel R6mil is a lot of money for it. R4m might be more reasonable in my book.

As for the figures, PM me if you would like to see the financials sent to me. That is what I was told and given. Have nothing to contradict this at the moment.

Any valuer will immediately take the rentals and divide them by 12% to get the value. If you are getting 112k rentals then that gives the property a ballpark value of 11.2 million. So the fact that you think it is worth less than 6m shows your lack of understanding of simple economics (no offense intended).

If the figures are indeed legit then you have yourself one hell of a bargain and the seller is an absolute idiot. But do your due dilligence - get it independently valued, get the building inspected and find out what new rentals you could get for it, not simply what the guy "tells you" he is getting. Noob_saibot's suggestions are good and that should be your checklist before proceeding