May 12, 2016

Commercial Property and the Cashed up Investor

Commercial property is on the move!

Cashed up buyers – the beneficiaries of a buoyant residential market in Sydney and Melbourne – are hunting for deals.

Increasing numbers of investors are enquiring about commercial properties with good rental returns in regional markets. Areas like the Sunshine Coast and the Fraser Coast are on their radar.

So, if it’s time for you to sell your property and cash in, then investors with strong balance sheets should be your target market.

Today’s investors are savvy – they’ve experienced significant growth in the Sydney or Melbourne residential markets, are cashed up and are looking to lock in cash flow through commercial assets to assist their serviceability should interest rates rise. They’ve searched the internet looking for key properties which suit their particular requirements and comfort levels. Does your property meet these needs?

Regardless of whether the target property is an office building, retail shop or small industrial unit, the typical investor is generally driven by one imperative – ‘what is the rent and will it continue to come in’.

Inevitably the decision to inspect or ultimately make an offer will be based on the quality of the information you provide as a seller. What is the quality of the property, but perhaps more importantly, what is the quality of the lease which will allow the investor to underpin the purchase of the property? Without a quality lease in place, it is unlikely that your property will make the first round cut.

So what is the importance of the decisions you made some time ago? Priceless.

Is the tenant responsible for the removal of his rubbish? Who cleans the toilets? Is there a ‘make good’ clause in the lease? Who pays for the rates, insurance and other outgoings?

A carefully prepared commercial lease will identify issues and give clarity regarding the obligations of the parties to the lease. It will also have the effect of giving clarity to the return on investment the investor is looking for.

As an example, if you expect to sell your property on an 8% yield, then if you receive net rental of $40,000 per year (because the tenant pays all outgoings) then you could expect a sale price of $500,000. Then consider if the situation were that you as the landlord paid the outgoings and they were $6,000 per year then the resulting drop in yield would cost you $75,0000 on a reduced sale price based on an 8% yield.

Investors prefer leases where the tenant pays all outgoings. It is as simple as that.

So, go and check your lease and make sure that you maximise the sale price of your property.

But remember above all – if you want to sell then the market is showing all the positive signs which should encourage you to take advantage of the cashed up investors.

Tony Nioa provided this Article. Tony is a Commercial Real Estate Agent with Colliers International. He has more than 30 years experience in the property industry (the majority of which is in the area of commercial property investment) and specialises in the Sunshine Coast and Fraser Coast areas.