A commercial property is for sale
price 159000
lease to 28.02.03 with 3 yr option
lease $1107/m
VO’s $248/m
Rent reviews every 12mth
size 138m2
3 coolrooms
2 A/c’s
Food processing council approved
Located in a zone industrial area.
With all this info can anyone advise
What additional info do I need apart from the lease doc?
Would it be considered a reasonable purchase in today’s market?
Leave it in your hands for commentsOK.
My initial thoughts…
Monthly rent = $1107
Weekly rent = $255.66
11 Sec. Solution = (255.66/2)*1000 = $127,829
Sales price = $159,000Outside parameters.
BUT
1. Can you increase the current rent (ie. sublet areas, value add etc)?
2. Can you negotiate a lower purchase price?
3. What guarantee do you have that the tenant will renew?
4. What’s VO’s mean? Outgoings? These should be paid by the tenant?
5. Banks will uusally only lend b/w 60 and 70% on commercial… can you afford the deposit + closing costs?
6. What is you minimum required return?That’ll do for starters.
Bye
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
With commercial properties you have to be very careful – especially if you have a limited cash flow. By looking at it you only getting something like $13,200 annual return = 8.3%, which I believe is quite low. I try to aim at about 12% with commercial properties. Oh I forgot to ask who pays the outgoings?
Another funny thing with commercial properties is that usually towards the end of the lease, the amount of rent charged is that of above the current market rental price. This is due to the rachet clause that most commercial leases have. ie rent goes up each year to the amount of CPI or 8% which ever is greater. So with a 5 year lease by the 5th year, the rental price has gone up by around 50% of the 1st years lease. So if the commercial rental market hasn’t gone up due to recession, slow economic growth….. when the vendor is trying to sell in its last year the rent may seem high but if the tenant does not renew then your gonna have to drop the rental price buy quite a bit, which may result in a money loosing deal.
Its only another 3 months to the end of the lease, a good indication of wheather the tenenat is going to leave or not, simpilly go up to the tenant and ask him, if I purchase will you renew? If he says yes – ask for it in writing via a heads of agreement that you can ask you solicitor to draw up, if no well then what more can I say.
Commercial properties are very good investments if you find the right ones, the wrong ones just end up costing you a lot of money – especially if they are empty for 6 months.
To Steve Mck and the retired one many thanks for your comments and I take them on board
RegardsHello,
I invest in commercial property, and I am a sales and leasing agent for a commercial company here in Brisbane. One further comment about a small investor purchasing commercial property.
Depending on the purchase price (which depends on the income of course), try to get a multiple tenanted property. Then if one tenant vacates, you are not up the creek.
When I choose a property, I look for the following:1. location – must be convenient
2 good access and egress
3. general condition of building
4. age of building. For certain buildings vendor must supply asbestos report before it is leased or sold
5. who are the tenants? Is the tenant mix right?
6. Is it over leased or leased to the market? It is not a wise thing to purchase an over leased propery (ie a property whose lease values per sq. meter are above the general market)
7. Parking is essential
8. What are the city council plans for the area?
9. Confirm the leasing terms, options and amounts. Confirm whether figures include or exclude GST.
10. Confirm whether the commercial tenants pay outgoings such as rates, insurance, fire protection, security, lawn and garden maintenance etc.
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