Commercial Property Question

From: Derrick Barden

Wanting to become involved in commercial property and without any previous experience I was wondering what I need to be looking at.

Looking through the internet I found a property which I thought seemed like a good investment. Inner city office priced at $220K, 159 sqm and return of $220 per SQM. These figures sound too good to be true. Or am I missing something?

What other expenses do I need to take into account? What else should I be looking out for? Any feedback would be much appreciated.

I've been following this forum for the past 2 months and have found it very interesting and beneficial. Keep up the the good work everybody!

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Reply: 1
From: Tibor Bode

I am no expert in this area(commercial), but
how long is the lease, how much has gone from it, how frequently rent is reviewed and on what basis, how long is the tenant in business and what is the likely hood of stating extending) their lease, what out goings are you responsible for (usually the majority is the tenant's responsibility)
what is GST inclusive and exclusive in the figures, how desperate the owner to sell it, what is the location (which city) and vacancy rate for similar buildings, do I have 30% plus expenses (maybe less, a broker can advise on it) to put in as hurt money
would be some of the questions I would be asking. The yield sound good (maybe too good), but there are lost of other things also to consider.

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Reply: 1.1.1
From: A Jones

Hello Derrick,

I have just spent some time with a business colleague looking at renting offices in Sydney CBD and Chatswood.

The leasing agents (usually young guys in their late 20's) have all said how hard it is to lease office space at the moment. They have also said there is a preference for offices under 100m2.

We looked at an office at 192 Pitt Street (whole top floor 132m2 cnr Pitt and Market Street). Quite expensive to lease at $400/m2. It had been vacant for 3 months. Owner was negotiable on free fit out or rent free period.

My point is you need to factor in potentially lengthy vacancy periods. The landlord in this case was down $13000 and counting.
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