Found a commercial property in regional Australia selling for $50000 and renting for $75/week on a new 5 x5 year lease. It is tempting because I could pay it off fast and the property value won’t eat into our budget. The real estate agent was suprised at the amount it is rented and thought that it should at least rent for $120/week ( don’t know if he is having us on or not)but the new lease wass only just signed so no hope for this in the near future. I was thinking of buying sight unseen because I know the area and because of time constraints.
Any opinions on if I should go ahead or am I mad??
SharonI should add that it is located in a town with about 10000 people
Hi Sharon,
I am not a commercial property investor so please take what I say with a grain of salt.
Being commercial the lender will require a larger than 20% deposit on this property and will have similar limitations when/if you try to release equity at a later stage.
This issue is a limiting factor that you will need to consider in your deliberations.
As I understand it commercial leases usually include clauses about increases in rents so the capacity to ratchet up the rent from $75-$120 may be one of those pie in the sky dreams. The existing lease agreement will explain whether or not this degree of increase is legally achievable.
Of course then there is the question of whether or not the existing tenant can afford the extra rent and whether or not the current (or believed) rent is within market guidlines.
In your deliberations you will also need to consider the long term sustainability of this particular business and what will replace it if the current tenant closes down or moves on. A town of 10000 has limited scope for new sustainable businesses.
Derek
[email protected]Property investment advice and researched property in quality locations available.
Hi Sharon
As Derek said many factors to consider when buying in this market.
We own an industrial property and from experience unless you understand the demand and the real value of what you are buying it is extremely easy to make mistakes.
Do your homework, contact people who sell commerical/industrial. If you decide to place an offer, I would get professional advice, someone to view the lease and value the property. I would also request details on vacancies, sales of other commerical/industrial properties. How many businesses in the area etc.
Size (sqm)of building is important, no point buying a 90sq commerical property when there is a demand for 200sq. What happens when you lose your tenant and no takers due to size??
I hope I have not put you off as I believe buying industrial/commerical can be a fantastic investment.
Good luck
I bought some commercial shops a while back and I had 3 tenants out of 11 shops to start with.
Settled on the deal and doubled the rent instantly. Lost one tenant and kept two. Renovated two of the shops and now have 6 tenants and 2 shops to rent….(i got lazy and didn’t finish).
In short, Rent can go up and either your property is over priced or the rent is not being charged for whatever reason.
I would compare pricing on similar places or get a real valuation
Byronent
Adelaide SAHi Byron,
As I pointed out earlier – not a commercial investor but I was under the impression if a property is purchased with lease agreement in place then you as the new owner are locked into the previous agreement.
Is this the case? Your previous post indicated that this isn’t the case.
Derek
[email protected]Property investment advice and researched property in quality locations available.
NO my previous post didn’t indicate that. The tenants were on monthly leases so I doubled the first chance I got.
Is the lease in the name of the company or persons selling?
Byronent
Adelaide SAA 5×5 year lease in the name of the vendor. Only just signed up
Hi Nemo,
If there is a lease in place then that will determine how much rent can be charged and if/when there can be an adjustment.
So in terms of your calculations you will have to get a copy of the agreement but for now rely on the market rate of the day.
Derek
[email protected]Property investment advice and researched property in quality locations available.
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