Thank you so much for sharing your wisdom! We're in the research stages of property investment and commercial property is something I've just started to look into.
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Hello Chris,
Thanks for your post – we are looking at investing in a commercial property and this will be the first time we are looking at purchasing a property. It's relatively low risk for us as the property has a potential tenant already and also we are looking at renovating the existing flat attached to rent to our own business so at least one third of the tenancy is guaranteed, so to speak. I am interested in the hidden costs that you mentioned and would appreciate you going into more detail so I can do a bit more research. The building is heritage listed and based in tasmania.
Would apprecaite any inputs you might have!
Regards,
HeidiSorry about the late reply Heidi, I have been traveling for a few days.
I guess the first step is to identify and maybe separate your business needs and requirements from your property investment objectives.- Is the property a good investment
- Does it suit your business requirements – having a reliable tenant (yourself) is a plus however, the property should still represent good investment value.
I am assuming that it does suit your business premises requirements so some of the investment considerations are;
- Should you look to lock in the potential tenant prior to completing the purchase?
- Is the property attractive and suitable to tenants – what would be the lease up time?
- You need to allow agents leasing fees for finding new tenants (say 15% of the gross annual rent for that particular tenancy)
- Will money need to be spent improving or fitting out the property (for yourself and/or incoming tenants)?
- Will the tenants pay for this or will you?
- What rent can you charge them for the property – is this at market rates?
- Can you buy the property at a discount as it is vacant and generate uplift when you lease the property up?
- Will the heritage listing prevent any such desired improvements or indeed make them more expensive?
- What other restrictions or costs does the heritage listing mean for the property?
- Will the leases be gross or net lease (i.e. who will pay the outgoings, you or the tenant)
- Have a boundary and/or internal area survey done to firm lettable area etc.
- Check the structural integrity of the property and a/c system thoroughly. Depending on the size of the property you could pay a facilities management company to do a dilapidation report (which includes 10 projections on the expected lifespan and CAPEX requirements of the buildings fixtures, fittings and equipment).
- Check zoning and allowable uses.
As you get through this let me know as side issues will probably pop up?
This could be a good case study for the forum.
Chris White | Pillar Property
http://www.pillarproperty.com.au/
Email Me | Phone MeThe Property Investment Specialists
hi
Thanks for the advice, we are currently looking into another commercial property, but i still have trouble getting my head around some of the fact and figures of it all, your last post did make good sence, but where did you calculate the $28k from?========================================
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las vegas condominiumYou are in the wrong section.
This post is on commercial property.
Chris White | Pillar Property
http://www.pillarproperty.com.au/
Email Me | Phone MeThe Property Investment Specialists
Chris,
don't waste your breath…..melton terrace is a spammer. He joined hours ago and three similar posts and also spammed my PM inbox with the same post.
I've reported it to admin and hopefully we don't hear from them again.
Hi Chris,
wow i have read everything that you have written and am sooo confused its just not funny.
As my name indicates i am literally 'just starting' i found this website last week by fluke and was a little uneasy about joining b/c i thought well it says its free but i bet you its not theres no way any good advice is free on the net but to my surprise maybe i was wrong.If the is any advice that you could give me (but in laymens terms) that would be great. The commercial property that i a m interested in is going to auction in just over 2 weeks which has put me under the pump! i have no idead about investing. This property i would love to use for my own business but the women in there now has just had a new 4yr x 2 lease drawn up. it is a morgagee auction and there the ones that made her get out or sign a new lease…..its very complicated and without getting into the nitty gritty if i buy it how much do i bid to? can i end her lease in future but before the 4yrs if i want to and as far as the rent goes how do i know if she is paying enough and cpould i as the new owner increase it at all???
JS – you don't just jump in to commercial property on a whim. There is a lease in place for a period of 4 years plus another option period – that means the tenant has a right of occupation for the duration of the lease and option period (if they choose to exercise the option) – so basically you cannot occupy the building until the earlier of the expiry of the lease (if the option is not exercised) or the expiry of the option period – you can only end the lease if the tenant breaches the lease (and does not remedy the breach).
The terms of the lease will dicate the rent reviews, frequency and type – so no, you can only adjust the rent according to the lease. How do you know the tenant is paying 'enough' – by this I assume the tenant is paying a market rent, you can ask other agents how much ($/m2 or weekly rent for the size) similar properties would rent for (check out websites etc), conversely how do you know if the tenant is paying enough – check the rent in the lease.
A property with a 'lease on foot' is bought for the cashflow generated – market research (talking to agents, valuers etc) will establish the capitalisation rate (net yield) to establish how much that you should be paying for the property.
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