Possible 1st CIP

[venno]

Hi, just after opinions on a possible first CIP investment. I have been looking at the low end, under 1M, and have found a commercial office/factory unit currently leased to an industrial AC company.

The lease is 3yrs (1st yr nearly done) with a 2yr option, tenant pays every outgoing including management costs. Purchase is 760k with a current rent of 47k pa (inc to min 49k in feb). Complex is 5yrs old and the CIP is a unit within it.

I now the yield is on the lower side from what I see on the forums but is 6.3% net ok for a first CIP in the bottom end or should I be aiming higher?

cheers

 

[Trogdor]

No idea, but some suggestions.

What are the others in the same subdivision leased for on a $/m2 basis? How does the 47k you mention compare?

More qualitatively, what is rental demand like? What is the calibre of tenants inthe subdivision?

What have others sold for in the subdivision, and what are cap rates more generally in the area?

Without this info the numbers quoted are meaningless.

If 47k is under market you would obviously buy at a lower yield on current rent than vice versa.

This is where i would start.

Good luck.

 

[Aaron_C]

Look at comparable yields, and also look at the strength of the tenant. Hard to see since the landlord would never show you their bank statements confirming rental but you can make a general assessment based on anecdotal evidence and what you can gather from the industry.

 

[evan1875]

6.3% net is good for resi yield, even then it depends. But it is not resi. It is strata industrial.

Unless there is something special about the property it is low.

Have you not come across anything betterer?

And what are you trying to achieve with this purchase? What role does it play in your wealth creation?

 

[venno]

Trogdor, evan1875 and Aaron C, thanks for the replies guys.

At this stage I don't have a lot of in depth research as I wanted to sound CIP investors out about the yield as it seems low in general to what is discussed as standard yields in the forum for CIP.

The complex is well kept and presented and fully occupied by well known local companies (no national tenants or Govt). Its a group of commercial/industrial strata offices with small industrial factory unit components in each unit, but primarily the tenanats are utilizing them as more HQ white collar offices. This is abnormal for the industrial estate (mostly factory units) and I am told the local council is not allowing any more purely commercial office developemnts in the area.

I liked the idea of CIP for the net returns and the tanant paying all outgoings (less hassle), plus also the long leases. I can't afford over 1M mark so I haven't been able to find anything better in Perth so far. The yield does seem low and I just wanted to sound you all out on that.

cheers

 

[evan1875]

Venno

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