Hello all
This is our situation – we own a factory unit which our company leases. It is now too small and we need to purchase/rent larger factory unit. The cost would possibly be around $400,000+.
However I feel that we may be limiting our options.
This money could be used to purchase a commercial property and possibly realise greater growth and returns?
Obviously there pros and cons to both, I am interested in anyone who has experience in this area and comments.
ThanksHi Marisa,
If you are looking for a larger industrial property to lease, give me a tingle, I have an absolute cracker for lease in a prime spot.
In terms of CIP vs IIP, we only own IIP’s at this stage, but are seriously looking at CIP’s in the CBD and in my opinion they seem alot better, attract a better class of tenant, but more importantly the Directors of the tenants seem to take the lease obligations that they commit to far more seriously than with IIP’s. This is a big issue for us.
Land content in IIP’s tend to be larger – as a gross overall comment…which is a good thing, and zoning typically allows more flexible use of the site.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Hi Dazzling,
thanks for your comments, I was hoping you would reply.We have been offered factory unit next door which will service our immediate needs and considering it will cost a fortune to move all equipment etc. it may be the way to go. This will solve immediate problems until we decide what next.
I have a question for you though, if you were starting out with your first commercial property where would you begin? Are you currently looking at this market?
Reading the paper today it is disappointing that some CIPs offering 7%. What are your thoughts.
Cheers, Marisa
Marisa,
When I was back in Oz I noticed the drop in yield as well with CIP’s. All of the Fed. Govt leases used to be ~ the 7% mark, but now the developers and owners are getting greedy and lowering the yield down to that level for ‘also ran’ tenants.
I’ve seen a pattern of late where Eastern States investors are snaffling up good Perth props on much lower yields. These aren’t attractive to the local Perth buyers, but compared to what they can get over the other side of the paddock, it’s good for them. I think, combined with more people being cheesed off with the low returns of the ressy market and whinging tenants, we might see a continuation of this trend.
Shifting next door is definitely not the go. Signing up a lease with us to take over our IIP is definitely the way to go…[biggrin] Geez, what else am I meant to say ?? PM me for what you are really looking for and what area suits.
Before I left I was still seeing great 9 and 10% nett yield props for sale, but the scale is pretty big. For starting out on the CIP route with less than 500K, you can still pick up good 8 and 8.5% nett yields with 5 yr terms.
One of our newer acquisitions in Welshpool was a basket case block value jobby with dodgy 35 yr old sheds, and is now 70% leased out and signed up. When 100% leased, it’ll be making 15.5% gross yield (12.7% nett). This is definitely one of those distressed properties that needed some elbow grease. You simply can’t buy them like that.
If we applied that same Eastern States logic of 7 or 8% yields on the cap rate method, the prop would of increased value by ~ 600K over 3 months for about 10K worth of costs and some confrontation with illiterate trogoldites who refused to pay rent and refused to move or clean up their mess. Well worth the hassle.
Our biggest dilemma is deciding whether to sit back and collect the 15% yield, or cash out, pay CGT and transfer equity into classy CBD CIP’s.
Our biggest lesson from this whole exercise is not to be put off from ugly and disgusting looking properties. They can be both capital growth shooting stars and great yielders. To look at though initially, you wouldn’t let your dog set foot on it. We’ve now moved away from “pretty” properties.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
You must be logged in to reply to this topic. If you don't have an account, you can register here.
