While researching my previous post I came across some commercial properties for sale, around the same areas as the previous search. Country towns around Victoria.
First a few terms to be aware of freehold and leasehold. These terms don’t come up a huge amount, certainly not when buying regular property, but commercial property is sometimes a bit different.
These terms definitely come up if you’re looking at a commercial building like a pub, the history of which I’ll get to in a moment.
Freehold basically means you own the building and the land sitting on top of it. Most domestic property purchases are freeholds.
Leasehold means a few different though similar things. In terms of things like cattle stations, big farming properties and the like they are under “99 year leases” or long term leases, usually from the state or federal government. Essentially you own the properties and anything on the land but the land itself is retained by the owner. Real estate agents and other commentators often call 99 year leases ‘essentially for life’. But they’re not if you have any sort of succession planning whereupon you wish to pass the property onto your children or if you’re a business retire and pass it onto other managers.
In terms of businesses particularly pubs (which is where I first encountered the term) a leasehold relates to the business. This is what you’re purchasing with a leasehold. You are purchasing the ‘hold on the lease’. With a pub it’s probably more technically or historically the right to operate a business on the land, including the pub.
If you’re ever looking to buy a pub a freehold (the land and the pub) is much more preferable than a leasehold (just the business).
Why this is notable for pubs goes back to breweries, they would historically have purchased the the pub or the land, in order to have somewhere to sell their wares, then a publican would run the pub. The publican would have the leasehold and the brewery would have the freehold.
Another slightly easier way to understand it is leasehold = business. Freehold = land.
For this search I’m realcommercial.com.au I’m using this site and used its sister residential site simply because the image display gallery functions better for quick searching. There are other sites, for instance one of my favourite travel accommodation information sites Gday Pubs has a page of pubs for sale and lease.
The freehold / leasehold difference becomes quite evident when looking at commercial properties.
This property 73 High Street, Maryborough, Victoria 3465
It’s listed as “The freehold is offered For Sale with the business otherwise a lease to market will be drawn up.” Below this is listed “Business - $50,000 plus SAV Freehold - $150,000”. SAV means ‘stock at value’. With this property your $50k is only buying the business, not even the stock, the SAV means they want you to pay for this in addition to the business’ price.
Here’s another property: Gilbert & Jury, 128 Barkly Street, Ararat, Victoria 3377 which states “option to also purchase the freehold premises from current owner”. It’s for sale for $45,000 neg plus S.A.V.
Moving onto properties that you might actually be able to afford in the $50k range it’s important to think on why you might actually hand over the not-so folding stuff for a commercial property versus a residential property. In my last post I explored the latter as if you were buying it for yourself to live in or enjoy etc.
But for this commercial property search I’m using somewhat different parameters to weed out some of the results from the property searches.
For this search I’m looking at property which you might lease out, in order to turn a profit, so your $50k actually works for you better than it would sitting in the bank.
Of course, putting the green stuff in property is by no means safe, but there is some reward over having it in the bank.
Although in this price range it’s not going to be amazing, and you’re unlikely to see huge growths for such a small outlay.
I’m going to be looking again in Victoria, and I am excluding properties that you could buy (freehold) but couldn’t realistically rent out, because a lot of the cash is in the purchasing of the business and freehold.
This immediately disqualifies any listing that has phrases like “take the reins” or “be your own boss”, and anything that includes “SAV”. Although I should point out for those seeking a change of scenery and business this is a possible way to do so, buying and running a business.
First up is 16 Oke Street Ouyen Victoria 3490 It’s currently leased at $100 a week to a second hand clothing and items seller. All up it’s got 4 rooms. Ouyen’s a town that sits at the junction between the Calder and Mallee Highways, so while it is a country town it’s not as remote as some that I mentioned in my last post.
$100 isn’t amazing.
As a commercial property the tenants should be paying everything. You would need landlord insurance, but that’s all.
Also keep in mind that if you ever need to inspect the property it’s a 4 hour 40 minute drive from Melbourne, 450 kilometres. At that point you’re closer to Adelaide than you are Melbourne.
Your income would be (before expenses) $5,200.
This is actually the only commercial property I’ve been able to find which sits on its own title and is a whole building for under $50k. Moving forward things get more complicated and smaller.
I’m listing this property, which is $19k above the $50k limit simply because it lists how much rent you’d get per month, this will inform the following property, which is within the $50k range but doesn’t list monthly rental rates.
52/57 Malcolm Place, Campbellfield, Victoria 3061
This is a storage unit. For sale for $69,000
Currently returning $380 a month.
Yearly income would be $4,560.
The listing for this says “Ideal property for a Self-Managed Super Fund.”, it’s 38 m².
214/ 310 Lorimer Street, Port Melbourne, Victoria 3207
This is a little closer to Melbourne, it’s for sale for $50,000-$55,000.
It’s 21 m². Slightly smaller than the above property, but also cheaper.
Basically it’s a garage space. 4.1 metres x 5 metres.
It’s very close to the city, down by Fishermans Bend.
While the rental income isn’t listed I would guess given its lower price that it’s probably $1-2k cheaper so for comparison’s sake I’ll say it’s yearly income would be: $3,000.
Now, onto the commercial property where you don’t even get walls.
All you get is space. But with the $50k you can buy in the CBD. You just don’t get a huge amount for that $50k.
Yes. It’s a car park space.
Things I don’t know about buying a car park space is what sort of fees are involved, I would imagine there would have to be some sort of body corporate / strata fees, even though it’s just a car parking space. There would have to be some sort of public liability implications.
There’s a range of parking spaces for sale, I’m just going to list two because they each list the rent you’d get on them.
Lot 666/58 Franklin Street, Melbourne, Victoria.
$38,000.
It’s located on level 6.
Rent is $180 a month.
Yearly income: $2,160.
Address not listed, just “located just off Elizabeth Street”
$36,000
It says it’s close to “RMIT, Queen Vic Market”. Which is what the above property says as well, so it could mean it’s anywhere as within the CBD you can be close to both of those within reason.
Rent is $220 per month.
Yearly income: $2,640.
In conclusion income per year:
Ouyen property: $5,200
Campbellfield storage unit (over $50k): $4,560
Port Melbourne storage unit (rent not listed, but given its lower price I’d guess $1-2k cheaper): $3,000
Franklin Street car park: $2,160
Unlisted address just off Elizabeth street: $2,640.
On the face of the it the Ouyen property would deliver the best return. But there is the inherent danger with a commercial property in a country town that the business may fail and then you have to be able to get another tenant. Something that might be tricky.
There are a lot of storage units around the CBD and in the inner and outer suburbs. Probably as the listings suggest good for a self managed superfund where you’d buy it for your superfund, then (if you’re self employed) lease it from the superfund and store stuff in it. Or rent it out for lease and hold it in your superfund, waiting until you’re able to sell it and gain the (reduced tax) returns. I’m no expert on self managed superfunds (I’m neither an accountant nor a lawyer), I do know the rules are complicated and you need one or both of those to set one up.
Car parks are something that there’s always going to be demand for in the CBD, but buying a car park is much like buying an apartment and it may be that any additional fees will eat into your income.
Personally, even with the dangers involved I think I’d go with the Ouyen property. It’s something on its own title. It pulls in the most yearly income. You could maybe create a liveable space at the back of the shop, a one room bed / living room and then a kitchen in one of the other spaces as well if need be if you wanted to try and rent it out as a house / business.