YIP’s 2010 Investor of the Year, Patrick went from being broke, unemployed and struggling with a mountain of debt to becoming a multi-million dollar property tycoon in just eight years. Patrick got his start with just $22,000 of his own cash and leveraged the rest of the money from the banks to get him to where he is today. Having gone on to acquire a couple of commercial properties in Port Hedland, and with other projects on tap across NW Australia and abroad, Patrick has retired from his day-job as a pilot and achieved his goal of escaping the rat race.
Here is his latest blog entry:
This is a quote I take inspiration from on a regular basis, and often find myself reflecting on before taking action or making new plans.
“Concerning all acts of initiative (and creation), there is one elementary truth, the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one’s favor all manner of unforeseen incidents and meetings and material assistance, which no man could have dreamed would have come his way. Whatever you can do, or dream you can do, begin it. Boldness has genius, power, and magic in it. Begin it now.”
- William Hutchinson Murray, The Scottish Himalayan Expedition (1951)
After the event or journey is taken, it is possible to join the dots looking back, but at the time looking forward it is not possible to do so - but we have to find the faith that they will...
The second house ( 4x 2 transportable) Ive been building on the block in South Hedland with an existing 3x1 is now completed and the transport company that leases the existing dwelling has taken the lease over the new building.
The new purchase (JV) which settled 3 weeks ago - has a tenant now ready to move in on a 12 month lease. They actually requested 24 months but due to the fact we intend to develop the block- starting at the back whilst retaining the existing until ready to develop the front of block, it's more in our interest to keep the lease term at 12 months. We needed to replace the carpet in the living area to satisfy the new tenant which is being done now.
We are now reviewing builders and plans before deciding on build strategy for 2 free standing 5x3 houses at the rear of block and then potentially another 3 on the front of block once the existing is removed. Lots to do but we are moving forward one step at a time. Having secured a tenant also means that our holding costs on the project are covered so we're not burning holes in pockets while getting plans together. Takes the pressure off!
The news on the commercial development - the titles are being issued as I write- finally...and we've just booked settlement for the end of month, so we're almost over the finish line and the money is nearly in the bank...nearly!
Last week was meetings with Civil Engineers talking about drainage!
On a commercial/ industrial block I own I have a major fuel company as tenant where they have a 24 hour truck refueling yard. They have drainage issues surrounding the fuel bowsers during the wet season which is approaching, so we are reviewing options and solutions to eleviate the problem. Some fairly major works are going to be required to raise the bowsers and hardstand to prevent flooding.
For my other commercial tenant, who is a major transport company, I am in the process of getting quotes to upgrade the facilities including new office space, large storage sheds, wash down bunds and a fairly large civil works project. The idea is that I organise and pay for the construction then amortize the costs in the rental.
To get a return on their capital expenditure, I offer a longer tenure on the lease to the tenant which is additional security for me. The value of the block increases as the improvements are upgraded and the rent is increased - which is good for me.
Typically commercial valuations are based on the return, and in Port Hedland cap rate (or return on capital) is 10-12% as a rule. Bear in mind this is a net return as tenant pays all outgoings and GST- so commercial property can be very good for cash flow positions and tenure.
The new terms would push the lease out for another 10 years, with options for another 5x5, and the rent will double allowing me to revalue the property. The expectation is that the value will double also making the exercise more than worth while.
The value in commercial property is all in the lease- long tenure is good for security. Short tenure is good if the property is under developed/ under valued and you plan to develop or upgrade.
Terms are important as regular market reviews allow you to return the rent to market should it fall behind.
Until next time... Adios!
Patrick Cornwell will be sharing some of his wisdom on how to build a multi-million dollar property portfolio at this year's Melbourne Property Investors Forum.