Saw a deal fall over last month for a purchase of a property in a SE QLD coastal town. The buyer wanted to buy (850k) and develop (1.6mill) a commercial property – had the tenant lined up and all, but figures came back at 13% and he normally goes for 17% return.Deal finished now looking at another.
With a good tenant and lawyer why would you even look at residential?
cu@thetop wrote:Saw a deal fall over last month for a purchase of a property in a SE QLD coastal town. The buyer wanted to buy (850k) and develop (1.6mill) a commercial property – had the tenant lined up and all, but figures came back at 13% and he normally goes for 17% return.Deal finished now looking at another.
With a good tenant and lawyer why would you even look at residential?
Good point; the only drawback I can see with Comm over Res is that the economy dictates the flow of business, and in bad times if you lose a tenant it may be very hard to find another one.
Someone once told me that only Comm properties over $500k are worth the effort as you get bigger and more stable tenants apparently.
The deposit is higher as well being a Comm.With commercial property, you would sign contact for 5 years, but 6-12 first months are often free. This is normal practice and i also see vendors agreed to pay say for 50% improvement bill ( fitout and such). So it/s is all not that sunny. Like in residential market you need to know what property's a the good pick…
YEs. I know a commercial premises I was really tempted to buy two years ago – for $440k, with a 'new reliable tennant with dynamic growing buisness, providing you with stable income for years…' (unquote) that showed a much better rent return than anything residential around – at present has no tennant and is listed for sale at $375k. Glad I did'nt……….
Yes – this guy goes for bigger tenants but usually has them lined up before the first sod is turned.I agree the smaller commercial tenants are always the problem children.
PS LA Aussie- like your work in the greedy tradies thread but I'm too scared to put my head up over there with all the vitriol flying around……..
I have family who built 1 million dollars worth of commercial offices 6 years ago, it it now valued at 3 million and returns 200k+ p.a
contracts are for 5 years at a time and the first month is free. I don't know where someone came up with 6-12 months..
Office/Shop fixouts are payed by the tenant and all changes have to be reversed at the end of the lease at the tenants expense.
The right commercial building in the right position blitzes ANY residential property.
Hi, obviously people who say timing isn't important need to evaluate more carefully. You can buy well when things are depressed. Even a hole in the ground will repay handsomely.
Small tenants are not necessarily bad. I have 7 of them. They can be troublesome but you can also get rid of them. I bought small shops in a suburban strip where I lived. Yield was 10.5% when I bought. Rose to 14% when we put in another tenant. I didn't put up the rent for 3 years. Just increased the rent 20%. Neither of the tenants said anything! One of them tried strongarm tactics [said he might vacate]. I told my manager to let him go. Guess what? He signed the lease the next day.
I like small tenants. Big tenants can out-negotiate me. My hairdresser doesn't want to pay the increased rent, what did she do? She sold out to another hairdresser. There's been a hairdresser in that block of shops since my manager was a schoolboy.
Anyway, to cut the story short. I have 4 small shops with stable tenants. I have priced each one at $200000. Someone with +ve equity can buy any of these shops in a DIY superfund and have 7% indexed to CPI investment accummulating steadily till they reap it at retirement tax free. It's just a variation of salary sacrifice. What we must make sure of is that the rents are real, not jumped up.
Good luck,
Kum YinP/s check the history of the property before you even consider a price.
cu@thetop, commercial property does have more risks associated with it compared to residential however I don't see any of the LPTs investing in houses & units.
Depending on the type of investment, IRR will vary anywhere between 15% &30%+ depending upon the risk of the property/project. Modelling of returns is much more detailed than 'back of the envelope' stuff as these investors are there to make money not take up negative gearing losses (not deductible inside the trust).
I have to wonder what people are thinking when they buy commercial/retail premises on a very tight yield – unless there is a great upside ie development potential or upcoming market rent reviews these properties only provide good certainty of cashflow if they are well located with a good covenant in place.
I rarely see incentives greater than 3 months on a five year lease unless rent is then inflated to mask the cost of the incentives. In the scope of things, longer term leases provide security of the rental stream, vacancies will run around the 5% mark if the property is well managed & well maintained etc.
cu@thetop wrote:Yes – this guy goes for bigger tenants but usually has them lined up before the first sod is turned.I agree the smaller commercial tenants are always the problem children.PS LA Aussie- like your work in the greedy tradies thread but I'm too scared to put my head up over there with all the vitriol flying around……..
I tell it like it is, and there are some who get upset. This is an open forum, where everyone has an opinion, and some won't like yours. Don't be afraid to speak up if you think it going to add some value.
You may have noticed that I also give credit where it is due, so I don't always single out people for a slag-off every time.
Having said that; I give the agents more of a serve than anyone, but I think that most people are in agreement on that. I was an agent for a time, so I'm not talking out of school about them.
Good to have you on the forum; it's been getting a bit boring of recent weeks.
Get in there and make some posts!
simple wrote:With commercial property, you would sign contact for 5 years, but 6-12 first months are often free. This is normal practice and i also see vendors agreed to pay say for 50% improvement bill ( fitout and such). So it/s is all not that sunny. Like in residential market you need to know what property's a the good pick…6-12 months free is certainly not normally anywhere I have seen,…. you are lucky to get 1 month rent free in sydney
cu@thetop wrote:Yes – this guy goes for bigger tenants but usually has them lined up before the first sod is turned.I agree the smaller commercial tenants are always the problem children.PS LA Aussie- like your work in the greedy tradies thread but I'm too scared to put my head up over there with all the vitriol flying around……..
A large tenant certainly doesn't mean garanteed return,…. An IGA supermarket near me has had it's doors chained by the land lord for unpaid rent,
smaller commerial spaces might seem like they have a higher turn over but if they are well located it will be much easy to find a tenant,…
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