Just wanting to know what you all think of regional commercial +CF investments!
The yields are alot more attractive than their city counter parts, but…what if the tenancy was over in 2years, do regional shops find it harder to find new leasee’s than city ones, risk does equal return I know but it is so tempting.
What are you thoughts if the tenancy is only for 2+2 year options and has been for 15 years, and they have been established in the same building and area for 15 years, and are a government tenant?
The yields for this property are extremely attractive and it is 37km’s from a major city…should I buy?
What is the potential for disaster?
Your experiences, ideas, and techniques for research are appreciated.[blush2]
Higly Motivated Investor
I have never owned commercial property so the following is an opinion based on what I have read and heard only.
I think one of the major points with commercial property is that they can be less easy to rent out than your standard residential home. Poorly located property can sometimes suffer extended vacancy rates. Valuations are based in some part upon the return and the quality of the lease.
Having said that, once leased, commercial property should enjoy a long lease, less maintenance and a professional tenant which can be so much easier than many residential lease arrangements.
Do you think this property will be easily let in the future? Is there plenty of demand for it?
This is probably the “war winner” to use a phrase from my Army days.
Hopefully a commercial expert like Dazzling can share his experience with us!
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Whoa back there tiger !!!!
I’m far from an expert and would definitely class myself as a novice with less than 18 months experience.
Krupta, well done for searching out and finding something that appeals to you.
I’d answer your questions by looking at the profile of the following ;
1. Yourself.
2. The lessee.
3. The town.
4. The specific title and building thereon.1. Starting with yourself, what is your appetite for risk. How deep are your pockets…if the building is empty for 8 months are you going to be OK ?? What experience do you or your immediate support network have dealing with lenders and Govt depts. Have you got your solicitor all lined up.
2. Looking at the lessee, study the current lease with a microscope…and then do it again to make sure what you are buying. This continual cycle of rolling leases is typical of businesses or Govt depts who have their budget approved for the coming period. Usually you’ll find they will commit to what they have been funded with. The option period is secure for them…it gives you the Lessor no comfort at all. Lenders aren’t impressed with the option period usually either. Are they paying all of the outgoings ?? Is the rent quoted a gross or nett figure ?? Any bank guarantees ?? Have the lease professionally reviewed if you don’t know what you are looking at. Also, all Govt depts aren’t the same. I wouldn’t touch Centrelink (Fed. Govt) as a tenant. Typical Solicitor General leases (Fed. Govt leases) are pretty bad for the Lessor.
3. Town – do your usual checks.
4. Check it all out and make sure it’s zoned for the purpose being used. Too many here to detail.
Good luck…fill up those deep pockets, you might need it….but then you might fall on your feet too. Look at the upside occassionally too. It’s not all doom and gloom and risky.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
hi KRUPTA
I’m no novis moore or less ( that was a play on dazzlings name)
first I don’t like government tennents either mine are companies they are easier to deal with
second try to get it cpi or (5 or 6%) increases to cover inflation.
third get the tennenat to pay all out goings
fourth talk to a real estate to seee if it can be lease relatively easy to another tennant or need nodification.
fifth get the tennant to cover all insurances
sixth the lease you have is 2 x 2 I start at 5 x 5 and I’m neogitating with coles a 5 x 5 x 5 the longer the better.
unless you think the rent could jump up then go for a shorter lease.
I like commercial and would buy it over resi if I had to buy it.
as for regional comm its alittle more difficult tell me the state and region and if in nsw I’ll let you know.
if you tell me its in parkes or dubbo with a 11% then I would say that it is probably worth it if you say it down the road at orange I would say keep the money in your pocket.
You need to know the area.
you can get between 12 and 15% on comm in regional areas but outside cbd its hard to get lends and comm is even harder so most are paid bycashed up investors using equity from there cbd investments.here to help
Hi Krupta,
My 2 cents is this: everyone loves government tenants because they definitely can pay the rent, and they take up more floor space than they actually need. Good when they’re renting, bad when they leave.
I think my own reservation would lie in how hard it would be to obtain another tenant for this building.
Just like GR said, companies make commercial decisions, governments have guidelines and redtape.
Regards,
Munjy
Hi all, thanks for your replies, it is great to hear some different points of view.
The property is in a growing township benefitting from rich farming industry of beef & cattle auctions, mangoes, tea, and tourism just to name a few.
My finance is all at the ready, but I am buying an investment to pay for it self, so I can not pay for it if it is vacant for 8 months, I would like the lease to be longer but this is what it is for now, they have been there since 1990. I can negotiate the longer lease next time it is due if possible.
I feel the area is poised for growth with it being 1hr from an international airport and high tourist desination.
It is currently returning 13%, the idea is to buy 1 or 2 comm properties returning +cf and use that +cf to offset negatively geared resi properties in cap/growth based markets such as sydney, brisbane perth etc.
If this does not eventuate I will focus on resi for now with lower margins of +cf in better areas for cap/growth and if a comm prop comes along with reasonable +cf I will look into it.
Thanks for your input investors, any more ideas or advice welcome.[biggrin]
Regards
Higly Motivated Investor
Hi Krupta
I too am looking at a commercial property in a regional area which is poised for growth.
I am investing for Income but have never tried with commercial properties before, Now that a few months have passed, can you share any insights with the deal you were evaluating?
Thanks,
MattMatt Jones | Property Resource Shop
https://www.propertyresourceshop.com/
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Matt
Certainly from a financing perspective you will find that you need to offer a slightly higher deposit or additional security if you want to borrow at the higher end of the LVR scale.
Most commercial lenders will vary in terms between 65/80% LVR for a typical tenanted property with interst rates varying from around 7.1% for a small lodoc deal upto around 9.5% for a nodoc deal.
Also many lenders charge different interest rates dependant on the entity in which you are purchasing the property. I have several lenders that will charge residential rates if you buy in your own personal name and higher rates for Pty Ltd and F/T’s.
In saying all this we transact a fair amount of Commecial Business and most of the clients seem perfectly happy with the rates and terms we achieve.
Richard Taylor
Residential & Commercial Finance Broker
Ph: 07 3720 1888
[email protected]Richard Taylor | Australia's leading private lender
hi KRUPTA
interested in what you decided and how you went with this site and how is its growth.here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]
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