I have a nice office on the table its selling for 250,000 and net 7.2% yield I am a little suspicious and overly cautious because it seems too good a deal
The current owners are occupying they are a publicly listed company in Australia I have checked them
Out they are legitimate and they want to lease it back off me once I purchase paying all outgoings and leaving me with 7.2% net per annum. Where is the potential pit fall here?I asked for escrow for 3 years rent (the term of the lease) on the hopes I could possibly get the price reduced and I also offered the asking price minus a years rent.
The agent tells me it’s a going concern so no gst applicable since its occupied and tenants will sign into lease on exchange for 3 years? The office is in a relatively good commercial area
Just want some advice as it will be my first commercial purchase
So far the best deal my broker has found is a 6.3% lease doc loan with 30% deposit but I might put down 35% because it will be my last purchase for the year I think then I will ramp up the purchasing after a few months so most likely early next year . Just a little cautious i like to have money on hand in case I get hit with unexpected expenses that life throws at you. Like a brand new mustang ☺️who pays the ongoing expenses? what about land tax?
How you thought about ownership structure?
How will you fund the deposit?
Do you expect the values to increase?
Any options to renew?
Have you had the lease reviewed?
What is the cash on cash return?
What is the opportunity cost of investing in this – tying up deposit, using borrowing capacity etc.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Well those things are uncertain for me right now I have to get my solicitor to overlook the finer details but I want to put it through a company but may have to purchase personally for the time being it will use about 2/3 of my money right now but I’m confident I can build it back up by mid next year and I’ll still be left with enough to put a deposit on something else
As for values increasing its a pretty central location to the cbd it’s half an hour and less then 20 minutes to another central hub I know commercial can have little to no capital growth but as a rule of thumb your 3% rent increase each year should also be factored into price.
the yield isn’t that amazing for commercial so that wouldnt make me overly suspicious – the purchase price would suggest it’s a C-D grade tenancy, which isn’t a huge problem but worth considering what the other tenant tool is at this level.
You should be able to shave a fair few points of that interest rate however, unless there’s some specific finance issues in the background forcing you to pay for a more expensive product (location, servicing etc).
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
That’s all pretty standard stuff. Let us know how you get on.
7,2% yield seems suspiciously high to me. It must be some risks. Have you assessed its liquidity? May be it will be extremely difficult to find a buyer for this office in the future or you will have to bring down the price
@cjaysa says it’s low, @fredwisely says it’s too high. It requires more analysis especially regarding shifting of risk from vendor to purchaser.
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