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Hi All
Be interested on whether it is possible to buy quality CIP under $1M?
I have been advised that the higher entry level the greater chance of securing a quality tenant.
Be interested in views on this, if anyone cares to share.
Thanks
MTR
Hi MTR
Of course it's possible. Why would you think otherwise?
Your second sentence is a generalisation and like all of those easily countered with specific examples. There are a number of those in the CIP section of the forum in addition to those currently advertised on realcommercial. But it is also true that tenants who can afford a rent bill of $1m per year are generally considered better "quality" than those who can only afford $50k per year.
It's just like resi otherwise though. Some people buy what they consider to be a quality property with what looks to me to be a rubbish yield and others buy what I think are pretty good properties with excellent yields. There is no accounting for taste, the perception of risk or the hope of capital gain out there. You just try to make some money on individual title deeds where it looks like all these factors are most in your favour... just have to find them.
The fact that I wouldn't touch 99% of what is out there in CIP land is not an argument to not invest in CIPs. Just as it isn't for RIPs, where the percentages for me are more like 99.99%.
My end game is to purchase a commercial property but it would have to be in the 8 figures to make it worthwhile in my view.
Why does it have to be 8 figures? I would have thought that a good buy - good capital growth prospects, long term tenants, positive cash flow, if found, could be six or seven figures.
You're right China but I believe you get the AAA tenants in that price range. Plus you have far more control over your tenants at that level because you are dealing with stronger leases, better locations so you can command better rentals. Of course this is a while away for me but that's the end goal.
OK, this is my attempt at finding a "decent" CIP under the 1M mark. What are peoples thoughts. Good / Bad? Would also like critiques on my reasoning considering I have never bought a CIP and would like to sharpen my skills for that glorious day when I eventually change ships. Also, have never been to sydney or know anything about it so pardon me if some of my reasoning are way off.
http://www.realcommercial.com.au/property-offices-nsw-sydney-500195756
asking: 805 K
gross rent: 76.388 k
outgoings: 13.884 k
net rent: 62.5 k (approx.)
net yield: 7.76 %
leased until 2015
assuming building is of A grade
size: 112 m2 (decent size to attract tenancies of already established business. Unlike the small 1-2 offices of startups that may or may not go bust in near future)
price p/ sqm: 7,187.5 (Colliers report on the low side but within fair value)
rent p/ sqm: 558 (slightly on low side. Colliers report A grade rent between 655-820 p/ sqm)
Tennant: Thailand Board of Investments. Don't know about others but I'd say thailand is a pretty stable country and thai government would be a decent enough tennant.
Location: Never been to Sydney CBD so don't know good from the bad roads but am guessing is in a good location. 3 road frontage (George st, Bridge st, Dalley st). Corner suite of glass building = lots of natural light. Only downside is that it is a south facing corner. Am assuming it is on level 10 based on suite number. Higher up the better the suite. If it is level 1 then another downside but shouldn't be a deal breaker.
Market outlook for office space in Sydney CBD looks stable for foreseeable future. Colliers forecast a drop in supply which should put a decent floor under current rents. Only spanner I see regarding overall market is the unconditional go-ahead and completion of barangaroo which will see a massive supply of new premium grade office space. Could flood the CBD and put downward pressure on price, rents, yields, in fact everything.
Of course, if was going to buy would go into more detail such as reading the lease contracts, looking through strata docos, actually visiting the site, etc. But am only doing this as an exercise to sharpen my thought process and start to think like a CIP investor
soooooooooooooo, what are peeps thoughts.
Or the reverse could happen. If you are dealing with a 10m comm property wherein the rental is 1m a year from a multi-national or national ASX list company, they, as the tenant also have a lot of bargaining power. They have the resources to move elsewhere and have a great say in the rent that they want to pay because they know that if they move, you, as the landlord may have great difficulty in finding another tenant in a hurry who can afford to pay 1m rent per year.
Someone who has a $10M CIP probably could afford $1M in rent...
Or the reverse could happen. If you are dealing with a 10m comm property wherein the rental is 1m a year from a multi-national or national ASX list company, they, as the tenant also have a lot of bargaining power. They have the resources to move elsewhere and have a great say in the rent that they want to pay because they know that if they move, you, as the landlord may have great difficulty in finding another tenant in a hurry who can afford to pay 1m rent per year.
Be interested on whether it is possible to buy quality CIP under $1M?