All Topics / Commercial Property / Purchasing office, I need help?

Viewing 7 posts - 1 through 7 (of 7 total)
  • Profile photo of DolamootDolamoot
    Join Date: 2016
    Post Count: 17

    I have a nice office on the table its selling for 250,000 and net 7.2% yield I am a little suspicious and overly cautious because it seems too good a deal

    The current owners are occupying they are a publicly listed company in Australia I have checked them
    Out they are legitimate and they want to lease it back off me once I purchase paying all outgoings and leaving me with 7.2% net per annum. Where is the potential pit fall here?

    I asked for escrow for 3 years rent (the term of the lease) on the hopes I could possibly get the price reduced and I also offered the asking price minus a years rent.

    The agent tells me it’s a going concern so no gst applicable since its occupied and tenants will sign into lease on exchange for 3 years? The office is in a relatively good commercial area

    Just want some advice as it will be my first commercial purchase
    So far the best deal my broker has found is a 6.3% lease doc loan with 30% deposit but I might put down 35% because it will be my last purchase for the year I think then I will ramp up the purchasing after a few months so most likely early next year . Just a little cautious i like to have money on hand in case I get hit with unexpected expenses that life throws at you. Like a brand new mustang ☺️

    Profile photo of TerrywTerryw
    Join Date: 2001
    Post Count: 16,213

    who pays the ongoing expenses? what about land tax?
    How you thought about ownership structure?
    How will you fund the deposit?
    Do you expect the values to increase?
    Any options to renew?
    Have you had the lease reviewed?
    What is the cash on cash return?
    What is the opportunity cost of investing in this – tying up deposit, using borrowing capacity etc.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide)

    Profile photo of DolamootDolamoot
    Join Date: 2016
    Post Count: 17

    Well those things are uncertain for me right now I have to get my solicitor to overlook the finer details but I want to put it through a company but may have to purchase personally for the time being it will use about 2/3 of my money right now but I’m confident I can build it back up by mid next year and I’ll still be left with enough to put a deposit on something else

    As for values increasing its a pretty central location to the cbd it’s half an hour and less then 20 minutes to another central hub I know commercial can have little to no capital growth but as a rule of thumb your 3% rent increase each year should also be factored into price.

    Profile photo of Corey BattCorey Batt
    Join Date: 2012
    Post Count: 1,010

    the yield isn’t that amazing for commercial so that wouldnt make me overly suspicious – the purchase price would suggest it’s a C-D grade tenancy, which isn’t a huge problem but worth considering what the other tenant tool is at this level.

    You should be able to shave a fair few points of that interest rate however, unless there’s some specific finance issues in the background forcing you to pay for a more expensive product (location, servicing etc).

    Corey Batt | Precision Funding
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Steven Thomas
    Join Date: 2014
    Post Count: 5

    That’s all pretty standard stuff. Let us know how you get on.

    Profile photo of FredWisleyFredWisley
    Join Date: 2016
    Post Count: 12

    7,2% yield seems suspiciously high to me. It must be some risks. Have you assessed its liquidity? May be it will be extremely difficult to find a buyer for this office in the future or you will have to bring down the price

    Profile photo of Scott No MatesScott No Mates
    Join Date: 2005
    Post Count: 3,856

    @cjaysa says it’s low, @fredwisely says it’s too high. It requires more analysis especially regarding shifting of risk from vendor to purchaser.

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