Hi,
I have a commercial property in regional NSW — an medical-consulting type office where the tenant is a chiropractor.
There was a new 5yr lease when I bought it about 18 months ago. There is another 5yr option following the first period.I'd like to know what sort of factors people look at in determining how a commercial property is performing, and deciding when is a good time to keep or sell?
I'm aware of keeping an eye on things like:
– interest rates,
– investor confidence,
– population changes in the town,
– monitoring yields of recent sales of similar nearby propertiesAnd I'm aware that it's better to sell a commercial property with a good period left on the lease, rather than 1-2yrs.
There is a lot of information around to help someone monitor residential property, but very little in monitoring commercial property.
How do you more experienced guys (and girls) do it?
Thanks,
HJ72
hi another factor that you haven't mentioned is what will you lose if you sell? i e what will be your exit costs such as CGT, agents commissions, solicitors fees etc. factoring in these costs is it better to hold rather than sell?
If it's cashflow positive, and not causing you problems, I'd almost always hold. I'd turn it around ask: Why would you sell?
HJ, you need to consider what are your reasons behind contemplating selling – you have only held this property a short time, probably paid a premium if there was a new lease in place and now with 3 years or so left to run on the current lease want to make a run for it. You have 3 years of income virtually guaranteed still to come from this site, annual increases and more if the tenant exercises their option (3-6 months from expiry).
What were your reasons behind buying? Have your circumstances changed (or just the interest rate)?
Where will you be investing once you sell this property?
Your main criteria for analysis are net yield (ie rent less outgoings)/initial cost, as well as comparing this against net yield/current market value (if you were to sell).
There are plenty of good texts around, visit your local Uni/Tafe bookstore.
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