Commercial IPs with month by month leases

[danwatto]

Hi All,

I'm looking at one area and can determine how to value a leased property or an unleased property

But there's one available (office space) with only a month by month in place, where they have not renegotiated the lease.

The lease is only a little below market, so could only be increased a small amount i think.

Unfortunately the asking price is at the value one would value it as a normal leased property. However month by month has that risk involved that the re-negotiation may not go well.

How would you guys value this?
Would you get it under contract and then try and re-negotiate lease during the due diligence period? How do you handle the risk not being able to sign the new lease until after settlement?

 

[DaveM]

If you are borrowing to purchase, watch the lenders tank your LVR with a Z grade lease ie none adn no options

 

[Scott No Mates]

Be prepared for the tenant to give notice the day they get notified of the exchange of contracts. Have plenty of spare $ to cover the vacancy period (unless there is something special about the property).

 

[danwatto]

Thanks guys these are exactly dome of the things I'm worried about and I think they should be valuing closer to price as a vacant.. Maybe that's what I should offer at.

Any way to negotiate new lease during DD period?
Have you guys purchased a vacant before or always with stable lease?

 

[Shahin_Afarin]

The whole point of purchasing CIPs is for the lease so it rarely makes sense to purchase it without a lease in place and this is reflective in lenders' policies in assessing CIPs.

 

[Deltaberry]

The lease is a write off.

 

[HiEquity]

The lease is a write off.

+1

Treat as a vacant property. If it's above market value for a vacant property then move on.

Thanks guys these are exactly dome of the things I'm worried about and I think they should be valuing closer to price as a vacant.. Maybe that's what I should offer at.

Any way to negotiate new lease during DD period?
Have you guys purchased a vacant before or always with stable lease?

You could try making an offer subject to your negotiation of a satisfactory lease with the tenant but you will need the owner to agree to that condition and a good lawyer on your side. Might work in a slow market but it hasn't worked for me. IME that type of thing fails more often than it works but that doesn't mean it's not worth trying - let us know how you go.

My broker isn't good enough to get me a decent LVR and IR with no lease in place but that might not be his fault!

 

[Scott No Mates]

Have you guys purchased a vacant before or always with stable lease?

If you can bear the risk of 3-6 months without income on the property, then buy vacant if you believe that it can be readily leased. If it can't be readily leased, consider whether you should purchase it at all?

 

[Shahin_Afarin]

My broker isn't good enough to get me a decent LVR and IR with no lease in place but that might not be his fault!

Hey HE what was the LVR and IR in your case?

 

[HiEquity]

Hey HE what was the LVR and IR in your case?

Hi Shahin

These days I'm as poor as a church mouse and can't afford the hat to go with my cattle. So without income from the property concerned I trip over the servicing tests in a big way whereas previously my salary would get me over the line.

I probably should go get some sort of a job at some point...

But I have no idea what type of job to do now that the industry my skills and experience are best suited to is no more.

I was hoping this trip around Australia with the family would throw up some ideas but so far it's nada - zilch!

First world problems!