Owner Occupier wants to sell

[Gretsch]

I'm looking at buying some offices as investment and have come across at least 4 situations where the occupiers are wanting to sell their properties and remain on as tenants.

I ran my own business and owned my property, sure I went through tough times, I never thought about selling my property to pay out my debts thou, why would I want to pay rent ?? Today I still own the property and it provides me a good income.

To me it doesn't make sense. It tells me that their business isn't doing well and selling their property is going to release money into their hands....for what purpose ?

I don't feel comfortable buying such a property. Do I have good reason, am I missing something here or am I over-reacting. Anyone got any comments or thoughts ?

 

[Aaron_C]

Sometimes the business owner wants to release capital and this can be an easy way to do it without the hassle of moving.

 

[Gretsch]

Sometimes the business owner wants to release capital and this can be an easy way to do it without the hassle of moving.

So you're saying it 's not an uncommon thing ?

 

[Aaron_C]

So you're saying it 's not an uncommon thing ?

Yes I am saying that. One of the forumites here (starter) bought a commercial property from the tenant on a secure lease.

Of course it does raise suspicions (and rightly so) but you got to do your due diligence and ensure that the actual rental proposed isn't above market (people get sucked into it when they just chase yield) and determine whether the property can be easily rented out if the worst comes to worst and the existing tenant leaves.

 

[Gretsch]

Great. The rest is obvious. Thanks.

 

[John M]

I'm looking at buying some offices as investment and have come across at least 4 situations where the occupiers are wanting to sell their properties and remain on as tenants.

I ran my own business and owned my property, sure I went through tough times, I never thought about selling my property to pay out my debts thou, why would I want to pay rent ?? Today I still own the property and it provides me a good income.

To me it doesn't make sense. It tells me that their business isn't doing well and selling their property is going to release money into their hands....for what purpose ?

I don't feel comfortable buying such a property. Do I have good reason, am I missing something here or am I over-reacting. Anyone got any comments or thoughts ?

Hi Gretsch,

Always do your due diligence and ensure the rental is in line with market rent (not advertised rents!) as per usual, but there is nothing too unusual about this situation.

I have clients who sell to reduce their debt. Others can get a better return putting the capital into the business. ie the property may give them 6% returns, but if they put that $200k into their business they can turnover more stock and get a 12% return.

I wouldn't let this put you off. Make sure you purchase it at market value (or below) but this may even be an opportunity to get above market rent because they often will not want to relocate premises to save a few thousand $$.

I hope this helps.

John

 

[Scott No Mates]

Don't limit your dd to just the market rent. You are taking on a tenant that you don't know from Adam. Bank & directors guarantee, a review of their viability etc is essential just like any other lease.