buying vacant premises

[evan1875]

just a question from a complete noob in commercial for those who have tried and succeeded.

the risk of long vacancies is one of the main drawbacks of CIP investment.

but buying CIP vacant also represent a great opportunity on a discounted price.

i would know when it comes to residential what 'upside' opportunities there are after seeing a property, but have no idea what aspects scream 'potential' for a vacant commercial?

so where do u start? (or should u just be sticking to leased properties?)

thanx
chris

 

[Philip Thomas]

Evaluating commercial property

Vacant commercial properties can represent tremendous value, provided you can buy them at the right price & fill them at the right rental rate.

The key challenge with vacant commercial property will be finance. Banks like to see income coming in especially for commercial property. Its critical to understand what financiers are prepared to lend on.

With that aside, you need to work out who your ideal tenant is & how their business is doing at the moment. If you’ve got a large commercial space & the market in this area is for small units, then consider splitting the space via partitioning into small units.

Small units usually have higher rental yields than large spaces.

Have a look at the employment adds in the area to see who’s hiring. Its also important to assess what competing vacant properties are on the market & for how much.

I would also have a talk to some of the commercial leasing managers in the area so see what their feel is with regards to demand, supply and current absorption.

Also have a look to see what new commercial stock is entering the market.

Many of the banks produce quarterly or more frequent property outlooks for each sector. Recommend that you do a lot of reading.

PS commercial property is a broad area, so you’ll need to get specific. Type of space, location, size, age, industry etc make a big difference with regards to supply & demand.

Even multi residential sites on a single title are often considered commercial.

Philip

 

[rhyslivs]

I'm not sure about the price bracket you are looking at but another thing to consider is demand from owner occupiers.

If you are looking in the lower price bracket you will be competing with owner occupiers. Yield is not at the forefront of the thought processes of owner occupiers. They generally assess a property on a loose rate per square metre and whether or not the property suits there specific needs. In the current market owner occupiers are tending to pay more for commercial property than investors. Just some food for thought.

 

[brendio]

I see heaps of vacant commercial properties around at the moment, and I've thought that one strategy could be to first find a business that is looking to relocate, negotiate what rent they are willing to pay etc., and then find a vacant commercial that fits their purposes. You buy it cheap because it is vacant and then have a tenant ready to move in straight away upon settlement. The value add is in finding the tenant, which is probably the most difficult part of this plan, because if it was easy to find a tenant, the property probably wouldn't be vacant in the first place.

 

[Bird Dog]

I see heaps of vacant commercial properties around at the moment, and I've thought that one strategy could be to first find a business that is looking to relocate, negotiate what rent they are willing to pay etc., and then find a vacant commercial that fits their purposes. You buy it cheap because it is vacant and then have a tenant ready to move in straight away upon settlement. The value add is in finding the tenant, which is probably the most difficult part of this plan, because if it was easy to find a tenant, the property probably wouldn't be vacant in the first place.

Interesting point Brendio. Have you been reading Dolf De Roo's book at all as he discusses this very topic.
The key to many successful commercial property acquisitions is making your money at the start rather than the end and this could be one very good way of realising this.
As you also mentioned however "how do you go about this" so thinking outside the box is your best bet. Perhaps sourcing a database of local warehouse managers you can market directly into and start the conversation around upsizing / downsizing or even side stepping into something more suitable to suit their changing needs..
Does anyone have any other ideas....

 

[Philip Thomas]

Adding value to & flipping commercial properties with no money down

good point Brendio,

I had a colleague that did this.

He found a tenant with a need. He found a vacant commercial building up for sale. Negotiated a good deal to buy the property at a good rate because it was vacant. Signed a 3 year lease with the tenant with an lease option extension. Then on sold the commercial building with tenant before the tenant had moved in & before he’s settled. While he made a motza with no cash down, he was very unpopular with the tenant & previous owner. He must have told a few stories to both.

Philip

 

[evan1875]

but there is nothing wrong with what he did.

 

[evan1875]

and was he a commercial agent himself ro something to be in the position to discover such a deal in the first place philip?

 

[Philip Thomas]

Property Deals & Ethics

From what I understand he convinced the tenant that he was the owner. There were some timing & legal issues around the lease, names & contract of sale. He convinced the tenant that a long lease was in their best interest. He convinced the vendor that to find a tenant was difficult, hence good sales price. When the tenant realised that they could have purchased the building for less than the rent, they weren’t happy. When the vendor realised the property had been flicked at a substantial profit they weren’t happy. The new purchaser was unaware of all the transactions & dealings going on in the background, that would land them with a property with a disgruntled tenant.

At the end of the day the transaction was legally binding (with a good solicitor), just a lot of noses out of joint.

While he was in property sales, he was not a commercial agent.

The point is; yes there are property deals out there like this that are profitable.

Usually you need to control one of 4 things: 1. The tenant, 2. The property or 3. The finances, 4. The knowledge.

In this case he saw an opportunity (the property), added some value (the tenant) then maximised that opportunity on both sides, packaged it & flicked it.

It all boils down to what you tell people, how up front & honest you are. I’m not sure there was a lot of honesty in this deal. Yet it could have been done with everyone winning & no noses out of joint.

 

[Bird Dog]

From what I understand he convinced the tenant that he was the owner. There were some timing & legal issues around the lease, names & contract of sale. He convinced the tenant that a long lease was in their best interest. He convinced the vendor that to find a tenant was difficult, hence good sales price. When the tenant realised that they could have purchased the building for less than the rent, they weren’t happy. When the vendor realised the property had been flicked at a substantial profit they weren’t happy. The new purchaser was unaware of all the transactions & dealings going on in the background, that would land them with a property with a disgruntled tenant.

At the end of the day the transaction was legally binding (with a good solicitor), just a lot of noses out of joint.

While he was in property sales, he was not a commercial agent.

The point is; yes there are property deals out there like this that are profitable.

Usually you need to control one of 4 things: 1. The tenant, 2. The property or 3. The finances, 4. The knowledge.

In this case he saw an opportunity (the property), added some value (the tenant) then maximised that opportunity on both sides, packaged it & flicked it.

It all boils down to what you tell people, how up front & honest you are. I’m not sure there was a lot of honesty in this deal. Yet it could have been done with everyone winning & no noses out of joint.

I believe there are plenty of ways to make great profits in commercial property but by deception is not one of them. Sure you may get creative with information but outright lying....hmmm.
I also believe in Karma and if you conduct business in this fashion, then sooner or later you're bound to run into a slicker liar than yourself who will bring you unstuck.
Each to their own I guess but it shouldn't be that hard to earn a living....