we are thinking of buying a service stattion in a large country town (population in excess of 70k). Annual return is about 9% and has lease in place for next 5 years to a national tennant. The facilities are 7 years old
would appreciate any views regarding the pro’s and con’s of holding a service station as an investment property in these circumstances. aimis to hold for cash flow and long term.
I’ve read that servos in country towns, even with 70 000 pop, can be a dicey affair, especially with Coles and Woolies aggressive petrol policies pushing out the smaller operators. But you said you’ve got a national tennant so I’d be happier with a BP, Shell, Ampol etc than Mum and Dad and Dave type operation.
I’m not the cluest about these types of investments but I’d look out (among other things)for;
– is 9% good enough for this type of investment,
– will your tenant stay on after the lease, or
– could you get a new tenant if they moved?
– could you resell if need be
– does the site have other value adding uses etc. etc. etc.
Do your due dilligence and if the numbers stack up you could be sitting on a nice little earner.
My concern would be what happens in five years time.Being a specialised type of property,your market is limited.All is well and good if the tenant wants to stay on,but if they don’t and you can’t find another operator then what do you do? The property won’t be worth as much for resale without a tenant,and the costs for redevelopment of the site could be huge.
Service stations are a dying business since woolies and coles started discounting. Only a handful are surviving. These are the ones that are offering greater discounts by joining forces with local businesses or who focus on other things like groceries or operating the local post office.
units4me highlighted the issue of the underground tanks. They don’t last forever. Oil companies are keen to not own them because of the potential problems. When they need to be replaced (whether through age or failure), it will be an expensive exercise. I would research this issue pretty thoroughly.