Many of us love a nice old pub… but what about when it comes to buying one?
This week’s exciting finalisation of a converted pub purchase in Ballarat bought many emotions and considerations to the table and it made me consider all of the reasons why pubs raise so many questions yet are such rewarding capital growth assets.
Years ago I bought a little 1841 converted Georgian era pub in West Hobart. Little being the operative word, this cute little double stone gem formerly known as “The Albemarle Inn” sat on 121sqm of land and the stables and liquor store at the rear had been subdivided and converted into a double storey loft townhouse. It was love at first sight; a terrible thing for an investor to fall for, but the reasons it gripped me matched the reasons why it could grip many others too.
Scarcity, location, history and solid build.
Whether it be an interstate duo on secondment, a permanent renter, an executive placement or a fully furnished short-stay option, our little pub will fare well because it is based within walking distance of the city and wharf, has minimal maintenance issues to attend to and has lovely aesthetic appeal in the sea of Georgian cottages adorning the street.
But it hasn’t been without it’s share of issues and questions.
Pubs require an appreciation of their shortfalls and nuances.
First and foremost… the cellar. Cellar sizes vary but it goes without saying that an old pub’s cellar will be large. Depth varies but the requirement for an active water pump and/or water barrier is essential. We have dealt with our pub’s water pump before so it was no surprise when our Ballarat client did his second inspection following the builder’s inspection that he found a cellar pooling water and a damp smell affecting the ground floor. The power had been turned off after the sale and the owner had neglected to remember the pump. A frenzy of calls to the energy provider, the selling agent, the building inspector and a plumber ensured our concerns were addressed and the water was cleared.
While it made sense that an 1850’s masonry building has stood the test of time for ~170 years in the face of rain and floods, it certainly gave our buyer comfort to know he wasn’t buying a swimming pool in the cellar.
An important geography-based consideration is the location of the pub. Most are on semi-main roads and often on corners.Traffic noise, lack of anonymity, limited rear yard space and constant foot traffic can represent disharmony for some renters, so buyers need to be confident that the noise and disturbance is not so great that letting the property will become problematic.
Due to the historical nature of such buildings, the heritage overlays and restriction on future development can sometimes preclude an investor’s plans. Being clear about the controls and the council’s view of the property is critical if the buyer has ideas about making changes.
These buildings are iconic for a reason, and that will usually be protected for future generations to enjoy.
Last but not least, buyers need to be very cautious about financing the purchase. Confirming that the property is residential, or even residentially zoned is not enough.
I recall a purchase in Melbourne’s inner-west in recent years that threw our surprised buyers a nasty wildcard. The property was residential, the zoning was residential and the auction conditions prohibited us buying with a finance clause in place. The combination of their Loan to Value Ratio, lending restrictions at the time and the shadow of doubt about the (former) use of the building caused an issue with one particular bank. Our panicked clients had to scramble to other lenders and loan products in an effort to settle, and despite the settlement extension being granted, the penalties and stresses that the financier triggered were awful for everyone.
Being clear with the lender about the style and previous use of a special and scarce dwelling is really important. Negotiating a finance clause (or even ‘acceptable security’ valuation clause) can relieve the worry if incorporating such a clause is an option.
As it seems, almost everyone loves a pub. We just can’t assume that the bank will.
When I consider the beautiful iconic buildings (including old pubs) that I’ve seen for sale over the years, the capital growth has generally been impressive, the target tenant base readily attracted to the property, and the maintenance sustainable. They are superb snapshots in time and it’s glorious to see them preserved.
If only the walls could talk….
Our recent Ballarat acquisition could do a lot of talking. Known in her former years as The Argyle Hotel:
