To be honest, I'm surprised you got this far with the LL, perhaps the building is difficult to rent out, but we wouldn't even entertain these kind of requests.

Apart from the paintwork which is even questionable in itself, the rest of it sounds more like "furbishment" type works that most of the benefit will be received by the tenant than landlord…

Hi There,

I'm not expert, but what I can share is my experience, what you can get out of it is up to you and don't take it as advice but just a "story or shared experience:

I started off like almost every other commercial investor in the residential side about 10 years ago, was relatively young at 22 years of age. Let me just say that one of the most critical and often overlooked mistake that investors who "graduate" from residential to industrial/warehouse/commercial property is treating it the same.

To summarise my experience:

Commercial:

– You will not witness capital growth rates like residential (at least not currently anyway). A lot of this has to do with the fact you need at least 30% minimum deposit on a commercial property.
– Waiting periods generally average between 2 months to 9 months based on my experience, you won't find yourself a raft of choices to choose over too like residential.
– On the positive side, returns are GENERALLY higher – my property is considered a lot return and even it returns 5.5% p/a. On all of my past residential properties, I got nowhere near this return.
– Beware and I stress beware of dilapidated buildings, unlike a house which can be rebuilt relatively easily and also fix relatively cheaply, commercial properties tend to attract more expensive rates for everything from electrics to plumbing.
– You'll almost need an agent, commercial leases are much more complex, difficult to deal with and most of all, time consuming.
– Even if the building is brand spanking new, I almost always feel even the average commercial tenant has more issues than residential properties.
– Current demand seems (and even in the near future) seems to favour residential (if you are already in the market). Most factories are either offshore or struggling and even so businesses, but living space is restricted and demand is high….no brainer there.
– Tenant quality is a very very important factor in the sale price of a building! Their leases/options and also ability to pay pretty much affects what the owner is going to experience!
– Agents get a much higher rate of return and also charge the bull for getting a new tenant (most charge 1 months rent's equivalent) and 5% of rental per annum for their agent fees. This is almost double the ones for residential!
– Not saying residential is any safer or better, but from the stories I've heard there was a lot more issues with commercial properties. I've also witnessed more winners in residential than commercial!
– Residential was in my experience a much more enjoyable one – one property I've rented out for 10 years had about 3 different tenants but the repairs were cheap (nothing beyond $1K), maintenance was minimal and also I could manage the property myself, sometimes I was horrified at the thought of not engaging in agents for my CP!

Hope you got something out of that.

Regards,

Willister. 

Based on two tenants (on seperare warehouse properties) I have:

1. Both were on 3x3x3 leases, they chose to opt out after the 6th year.

2. First was a mechanic and second ran a gym/karate classes.

3. No, both refused the option of the 3rd x3 lease tenure, didn't break them "early" like within 3 years.

4. The mechanic I had expanded and needed a much bigger premise (1,000m2+), the gym/karate class guy opted out because of building facility issues that I had no real choice over. The building was aging and there was nothing I could do to keep him there. Faced pretty stiff competition from nearby (within a 10km radius) of newer and bigger named (e.g. Fitness First) gyms. The other problem was that my warehouse was too big for him to fully use. I have 1,000m2 of FLOORSPACE – he could only make use of about 500m2 max. I allowed him to sublet but he demanded lower rental rates, which I couldn't afford to.

5. Not sure, having said that, I would say 95% of all businesses wouldn't stay for a long time. Speaking to mates/agents in the warehouse industry, the only ones who can keep tenants in are shopping centres (goodwill invested, not easy to rebuild).

6. Don't know

7. As many may have mentioned to you, the commercial/industrial type property fluctuates and is heavily affected by the economy.

Take the above info with a grain of salt as this is purely on my experience, not a qualified expert!

Scott,

No, I haven't ditched him as yet…I had a face to face discussion with him over the weekend and decided to give him another "4 months" to prove himself. Having a look at the whole picture, I'm monitoring the surrounding properties and they don't seem to have moved either. Several were vacant circa mine was, so I'll keep a close eye. Also called several of the bigger companies and the gist was it is perhaps a low demand market issue, so changing the agent won't exactly solve things immediately and I would have to repay some fees such as internet advertising.

Michael,

Will keep you posted of any developments!

All,

What I can share is this, the problems I incurred were twofold:

1. A very slow paying tenant in the first place. I can't stress enough to anyone considering buying commercial property to make sure you check (by however means) that the tenant pays on time, maybe ask the agent if he is willing to provide statements etc.

2. A run down building, this coupled with a slow paying and troublesome client (constant complaining and requests for free rental periods as compensation…)

1 + 2 = Disaster…