Cheaper commercial properties - are they worth it?

[YPG]

Hey all,

So I have read some very informative posts over the last few months about commercial property and how as the price increase generally the better return as well as other perks, ie. longer leases, higher quality tenants, etc. As a few have pointed out a number of times it seems commercial properties over 1 million is where good money can be made.

But I am seeking peoples opinions on properties around the cheaper end around 250-400k. I will list two links of two that I have found that at an uneducated guess seem to still show potential.

1:
http://www.realcommercial.com.au/property-offices-qld-margate-5938056

To me I can't seem to fault this if the listing is correct. 10% yield, 3x3 year lease just signed. Reputable tenant. Decent size - 184m for 330k seems good. Location seems fine, to be fair I don't really know Redcliffe very well and obviously if I were looking to buy I would check out the area more thoroughly. With 120k deposit rent easily covering repayments and generating further cash flow. What am I missing? Any thoughts? I am assuming in today's market I could still knock off around 10k or more off an offer?

2:
http://www.realcommercial.com.au/property-offices-qld-spring+hill-500250969

The reason I like this one is that it is well located and very cheap. Building is nothing flash but it is clean, functional and doesn't look dated. If you could knock some money off the asking price then maybe you could get it to a 6% yield. 84sqm seems a decent size for the price - a lot better than some 40-50sqm comparisons in Brisbane I have seen. Who would consider this to be a good investment for 280k? Do people think the Brisbane CBD market is a good opportunity at the moment. In such a good location, surely over the coming decades demand for office space in Brisbane will drive prices up?

Something unrelated to this one is one day I would like to start up my own consultancy in Brisbane, say in 5-10 years when I have greater experiences and understanding of my field. This seems like a good option to secure entry level office in Brisbane at a cheap price.

Thanks in advance for your thoughts. Still don't have much of an idea of CP and really value those inputs who have a greater understanding than I.

Cheers
YPG

 

[Scott No Mates]

Obviously you have to assess vacancy rates in the area, demand, age of building etc as part of the due diligence. Quality of the tenant is one thing but the conditions of the existing lease have a lot to say about what the current tenant has provided by way of bond, guarantees etc.

Older buildings may require more expenditure for maintenance (reclaimable on a net lease) but also replacement of plant/equipment eg a/c chillers etc which the tenant does not pay for.

Do the buildings have a NABERS energy rating? Will you need to upgrade the building (not claimable) in order to attract a new tenant in the future?

Remember high returns also equate to high risk.

 

[Bird Dog]

2:
http://www.realcommercial.com.au/property-offices-qld-spring+hill-500250969

The reason I like this one is that it is well located and very cheap. Building is nothing flash but it is clean, functional and doesn't look dated. If you could knock some money off the asking price then maybe you could get it to a 6% yield. 84sqm seems a decent size for the price - a lot better than some 40-50sqm comparisons in Brisbane I have seen. Who would consider this to be a good investment for 280k? Do people think the Brisbane CBD market is a good opportunity at the moment. In such a good location, surely over the coming decades demand for office space in Brisbane will drive prices up?

Something unrelated to this one is one day I would like to start up my own consultancy in Brisbane, say in 5-10 years when I have greater experiences and understanding of my field. This seems like a good option to secure entry level office in Brisbane at a cheap price.

Thanks in advance for your thoughts. Still don't have much of an idea of CP and really value those inputs who have a greater understanding than I.

Cheers
YPG

I won't comment on the retail as it's a little too far outside my usual warehouse/industrial playground.

Regarding the office space, a 5.6% yield is not great with a lease that only has a year left on it so you certainly wouldn't be buying it for that.
I'm not familiar with $ sqm rates of Brissy but I'm suspecting you're thinking of perhaps adding value by re letting in 2013 to a new tenant at a higher rate.
Which sounds like a great idea but I can tell you the market up there is somewhat depressed at the moment and you may struggle to find a tenant which could leave you in a bit of a hole.
PM player as he's pretty up to date on that market and may give you some better insights.

As Scotty has said, check the strata fee's etc etc etc as well as the age of the building and whether or not there's any depreciation left in it?

Good luck

B.D

 

[PrimeCommercial]

Hey all,


1:
http://www.realcommercial.com.au/property-offices-qld-margate-5938056

To me I can't seem to fault this if the listing is correct. 10% yield, 3x3 year lease just signed. Reputable tenant. Decent size - 184m for 330k seems good. Location seems fine, to be fair I don't really know Redcliffe very well and obviously if I were looking to buy I would check out the area more thoroughly. With 120k deposit rent easily covering repayments and generating further cash flow. What am I missing? Any thoughts? I am assuming in today's market I could still knock off around 10k or more off an offer?

From taking a quick look the listing agent is Remax and the tenant in the images is also Remax. I note that the address of the leasing agent is in the next suburb but I wouldnt mind betting that the owner occupier is selling the property and bumped up the rent on a 3 year lease back arrangement to show a high yield. You can bet there will be a review to market at the commencment of the option period and the rent may drop considerably.

Only an assumption, so best to check things out

 

[kum yin lau]

Hi, that's exactly what I thought when I saw the agent & tenant were the same.

Having said that, realtors make fairly good tenants too and it depends on the upside for rent increases.

I know a realtor who bought a block of rundown shops really cheap, did them up and a few years later, sold them with himself as the long term tenant.

Unfortunately for him, rents kept going up & his 300K sale which seemed good 2 years ago looked really foolish when yields went to 7% There were no other shops in the vicinity.

I said what he should have done was sell the business & own the shops. Ray Croc. Sell the shops & own the business, work like a dog!

KY

 

[DaveM]

From taking a quick look the listing agent is Remax and the tenant in the images is also Remax.

Looks to me like Remax used to be there as its got a photo of them with the shopfront, then the other photos are with the furniture and signage gone and a for sale sign on the window. So I would guess that Remax moved out as theres no for sale sign in their photo?