Hello,
I am thinking of Commercial property investing. Only had land and units so far, what are the main differences that i need to look at?
when a business has a 5x5x5 lease, can i raise the rent after the first 5 years. If i dont have a tennant how hard are they to get? Commercial properties seem to be overpriced, why?
I hear that the tennant pays the rates? What would timeframe be to get a tennant, i hear they can stay vacant for longer. Does the lease deal still go through a regular property real estate agnet?
ThanksHello vyaw2003
I have owned my commercial property in newcastle for 2 years, my tenant is on a 2×2 year lease, my rent has gone up every year according to cpi, my tenant pays all the outgoings eg rates, strata fees,water and even my land tax.
I will find out shortly how hard it is to find a tenant, when they move out at the end of the financial year, as far as leases most commercial property manangers will ask that you get your solicitor to draw up the lease because it is more complicated then residential property, then the property manager should look after things as normal.
a time frame as to finding a new tenant would vary on a number of things, supply and demand, quality of the commercial property, rent, conditions etc etc
hope this helps regards
kaleHi there, IMO commercial property is the best option to be in for a number of reasons.
But firstly to answer your q's on when it is vacant i always look at a vacancy as a good time window for you to get everything back up to shipshape and do some renos or improvements.
In most cases you cannot do these things once the tenant moves in.
So get a signwriter to fluoro paint a to let sign on the window, with your mobile no on it.
Go to the local real estate agents and get one of there sign boards to place inside the window.
(you have the right usually to have his to let placard placed into the window up to 3 months before a tenant vacates your premises).
Just remember that an agent will usually charge you up to 4 weeks rent to find a new tenant for a five year lease. This can include drawing of a new REIV lease.
Additionally, if you want the agent to manage the property for you he will charge you approx 7% for collecting the rent.
so factor all these costs into your lease rates if you are doing it this way.
I prefer to have my own leases drawn by a solicitor, and pay for it myself. (usually costs around 380-480 for a Law Institute one,which has been tested and proven)
Now that there is no Stamp Duty on leases it is worth also always getting a new lease for changes in tenants, rather than a lease assignment, which is not as clean.
You can also place ads in the local papers yourself if you wish and want to be involved directly yourself.So when vacant get the place spuced up,painted in neutral colours, remove all rubbish,fix all locks and door repairs, service your Heating and cooling, water, gas, electric, phones,add extra power points, etc have the roof checked and get the spouting and downpipes cleaned/fixed.Do not replace floor coverings, at this stage, but make sure they are clean.
Lastly get the whole premises cleaned by a professional,if you are not wishing to do it yourself.
This especially means the walls windows and Toilets and sinks.
Show the tenant that you care.
Once you have a prospective tenant, you can neg about the floor coverings,vis a vis,any free rent period etc.By having the maintenance, and any improvements done to your property whilst it is vacant will enhance its appeal to a prospective tenant, and allow you to negotiate a higher rental amount.
Remember many of these things are improvements to your property, which means that they are removed from the capital base when you later come up for payment of capital gains tax at some later date.
Tenants usually pay for all outgoings, including landlords building insurance, so make sure you know which is the best insurance for You.
There are savings to be made on insurance if the business insurance and the landlords insurance are with the same Insurance Broker.Finally it is your choice, how close you want manage of your property. Or you can set and forget……..
Enough for now
All the best
Bax
Hello vyaw2003
It all depends on your lease which, as hookstart mentioned, is much more complicated than a residentual lease and takes into account things that residential landlords only dream about. It should be prepared by your solicior.
It also depends on what sort of commercial property it is as to what is "usual" in the lease.
Generally on a 5x5x5 lease it will say a CPI increase every year and "fair market rental" at the end of each lease period.
I assume you understand that a 5x5x5 lease means a 5 year lease with an option to renew for a further 5 years, twice. Their option, not yours.The funny thing about commercial property is that at the end of the lease period "fair market rental" may be considerably lower than what you were just getting for the property if there has been a large economic down turn in the mean time.
The good thing about commercial property is that usually the tenant pays all outgoings including land tax (single holding value), insurance, rates and water. My lease requires my tenant to paint the whole place whenever I ask.
However, since a good, long term commercial tenant is a joy for ever, you would be silly to ask when it was not necessary.
The price of a commercial property is dependent on the income of that property. For example I think the current return for a wharehouse with office is somewhere around 7 % yield. In excellent areas it could be less. It's a different yield for shops and offices. This of cause means that prices of commercial properties fluctuate with the condition of the economy.You might get some useful information on the following sites
http://www.propertyupdate.com.au/articles/49/1/Residential-Or-Commercial—Which-is-right-for-you%3F
There is also a book called "How investing in commercial property really works" by Martin Roth and Chris Lang which is worth a read.
Hope this helps
Elka
You must be logged in to reply to this topic. If you don't have an account, you can register here.
