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Dazza
14-10-2007, 03:28 PM
Hi there,

Anyone own any commerical properties?

I am thinking of possibly buying a commerical property, in which the tenant is a relative. This will be my first investment outside of shares and into the property scene.

Am just thinking how much rent does one charge, is it based on revenue sales ?

currently their is potential for increases to rent, but i do not know how much i can increase it to.

its not in a mall, rather a strip of commercial buildings, near by shops are dairies/indian restuarant/salon etc etc. The building is quite old i would say, easily 15-20 years.

The business is stable and the tenants has been there for 10 years, in which they have only had one yes i say one rise in rent.

My dad was saying investors buys the propery for the yeild, not for the caps gains.

So we were thinking if we can pump the rent up realistically then the cap gain i would gain from this would be awesome :D

Regards,
Dazza.

Ps. i know malls charge rent on a square metre and also on a % of sales revenue.

Turnover of the business is probably around 200k + .

Does anyone know compartively how much of commerical rent is a % of sales revenue?

STRAT
15-10-2007, 09:30 AM
Hi Dazza,
Couple of things come to mind after reading your post.
Renting to rellies can prove problematic. They will/may see you as the rich landlord and may expect special treatment although this is more common with residential. Rent may fall lower on their list of priorities than it otherwise would in hard times and they will/may be thinkin " Uncle Dazz wont throw us out on the street"
Rent value relates to the properties assets and its address, not the performance of the tenants business so check out other rents in the area.
Long term Stable tenants are a must and I assume the rellies are only one of the tenants ( its a block, right? )
Capital Gains is the cream and the property should wipe its own ar*e

Dazza
15-10-2007, 10:07 AM
im only going to buy 1 of the 'sections' not the whole building lol

the rellie is very close in fact they are the ones that came up with the idea lol.

so its related to properties assets and its address thanks

i guess i need to get a valuer in eh?

Billy Boy
15-10-2007, 10:46 AM
I own Com properties
Remember, weather it's a relly or not, you are entering into a business deal.
Treat it like a bizz deal.
get a valuer, find out from that valuer what a fair rental is for the purpose
you are going to use it for.
The norm is for the tenant to pay rent. gst, and opex's.
Opex's mean Rates, all insurances, maintenance, etc.,
all you have to do is keep the building water tight.
Your lawyer has a standard lease form and will set the lease up.
You say it is a section. Are you going to build on it. If so What.
If it is a purpose built building then get a demand a long lease.
There is a lot more I could go on about.
The above is just a few. Get some advice from your lawyer/accountant.
Remember, bare land returns nothing, and all (repeat all) landlords are
generally looked upon as Fat, Money hungry, Barst...ds, by tenants.
Cheers and good luck
BB

Kees
15-10-2007, 10:51 AM
been in commercial property for 20 years some sugestions to help you.
1. get it valued although a valuer would look at the rent being paid at this stage and would value it accordingly
2. get a lim report
3. Do not count on capital gain you buy for % return on your money
4. I find that a auckland law society lease covers everything
5. Tenant to pay 100% of outgoings (repairs maintance etc)
Read the book by Martin hawes Secrets of investments success very good info

STRAT
15-10-2007, 11:13 AM
in fact they are the ones that came up with the idea lol.

In that case they will absolutely want special treatment. :D:eek:;)

If you are only looking at one in a block Dazz, then the rent on the others is something you absolutely want to know

STRAT
15-10-2007, 11:16 AM
You say it is a section. Are you going to build on it. I think Dazza means one shop/apartment in an existing block

lakedaemonian
15-10-2007, 05:43 PM
I own commercial property.

I use the ALS lease.

Rent + gst + opex + costs associated with producing lease + personal guarantee.

I would never buy a commercial property housing a relative or friend's business.....never......not if I valued the relationship.

Unless it's a screaming buy....I'd be much less likely to take a punt on commerical property right now...it would have to be incredibly compelling.

Dazza
15-10-2007, 09:44 PM
lets just say that remember folks 10 years with only 1 rent increase

there is definately room for rent increase

obviously im not telling all about the 'relationship' i hear what u guys are saying, but trust me its good.

all im wondering is how much i can realistically increase the rent :D

it seems that i have to go get a valuer to do that, instead of say a % of the retail sales.

and yes its ONE SHOP that im buying not the building hehe.

i heard from somewhere that with commercial rents, its neva falls? it either just stays flat or it just increases correct?

also ps its a screaming buy :D

STRAT
15-10-2007, 10:40 PM
i heard from somewhere that with commercial rents, its neva falls? it either just stays flat or it just increases correct?
I heard the same thing about the share market :D:D:D

Arbitrage
16-10-2007, 08:44 AM
Grab a copy of Peter Aranyis book "Commercial Real Estate Investors Guide". It also contains a copy of the law societys lease document.

Rents are usually determined on a return per square metre. Go to the trademe site and search the commercial properties for rent in the area and you will get a good idea of what the rents per square metre are. Like any business it takes time to learn and a vlauer can short circuit this.

Valuations can be determined from rental yield (for example 10% yield is an often quoted figure). However reality is more complicated and every rent is a negotiated value specific to that location and situation.

Billy Boy
22-10-2007, 09:51 AM
i heard from somewhere that with commercial rents, its neva falls? it either just stays flat or it just increases correct?

also ps its a screaming buy :D

I use the Auckland Law Soc. Standard lease form (4th edition I think)
In there is what we call "The Ratchet Clause" It means , Rent cannot
be lowered by contract. Make sure this is included in the lease contract,
Most leases run over a set term, Say 4 by 4 by 4 Years.
This is a 12 year lease with two rights of renewal. Tenant may opt out
after a 4 yr term or roll over the existing lease for another 4 years.
Rent reviews may be stated as of every Three years. So you will have 4
rent reviews over the 12 years. I always go for a minimum being the official
inflation rate over the Past Term. This is where it can get sticky if you
involve rellies.
Bad management is not your problem.
If the tenant cant meet their obligations then they have gotta go.
A lease can also be sold and there is not much you can do about it,
unless you can show very good reason as to why not.
Remember
It's not the person you do the bizz with that will be a problem,
It's the one's that will come along later.
Thats why you have gotta have a solid contract. Use a Lawyer.
Also , never get too friendly with the tenant if it can be avoided.
A building with a good solid tenant and lease in place is easier to sell.
Cheers BB
Dis, Have been in the bizz for over 25yrs

Billy Boy
22-10-2007, 09:57 AM
i heard from somewhere that with commercial rents, its neva falls? it either just stays flat or it just increases correct?

also ps its a screaming buy :D

I use the Auckland Law Soc. Standard lease form (latest edition )
In there is what we call "The Ratchet Clause" It means , Rent cannot
be lowered . Make sure this is included in the lease contract,
Most leases run over a set term, Say 4 by 4 by 4 Years.
This is a 12 year lease with two rights of renewal. Tenant may opt out
after a 4 yr term if they choose,or roll over the existing lease for another 4 years.
Rent reviews may be stated as of, say, every Three years. So you will have 4
rent reviews over the 12 years. I always go for a minimum being the official
inflation rate over the Past Term. This is where it can get sticky if you
involve rellies.
Bad management is not your problem.
If the tenant cant meet their obligations then they have gotta go.
A lease can also be sold and there is not much you can do about it,
unless you can show very good reason as to why not.
Remember
It's not the person you do the bizz with that will be a problem,
It's the one's that will come along later.
Thats why you have gotta have a solid contract. Use a Lawyer.
Also , never get too friendly with the tenant if it can be avoided.
A building with a good solid tenant and lease in place is easier to sell.
Cheers BB
Dis, Have been in the bizz for over 25yrs

Dr_Who
22-10-2007, 04:36 PM
i heard from somewhere that with commercial rents, its neva falls? it either just stays flat or it just increases correct?



In Disneyland they dont...LOL

It all depends what grade commercial building you are talking about. 1st grade office blocks with quality long term tenants, you are right. But with second tier older buildings, it is hard to rent out to quality tenants and when the economy turns it is hard to rent out, so you have to give long rental holidays and all the other benefits just to get potential tenants interested. Trust me, I know cos I used to have a few commercial buildings in the Auckland CDB.

Make sure you get a good lawyer who specialise commercial lease to help you draft and advice on a lease to tie down the tenant, so when they default they cant get away. Also watch out for outgoings, that is a killer if your tenant is not paying for all outgoings. Old buildings are abit like an old car, needs alot of maintenance, which will hit your pocket. Good luck mate.

blockhead
22-10-2007, 06:16 PM
Remember, bare land returns nothing, and all (repeat all) landlords are
generally looked upon as Fat, Money hungry, Barst...ds, by tenants.
Cheers and good luck
BB


Blockhead once rented one of BB's commercial buildings, we never considered him as one of the above described less than perfect landlords, good landlords do exist but so do the other type, I think what made BB a good buggar was he has came up through the University of hard knocks. Commercially fair, could ask for nothing fairer I say, if you cock the business up, don't expect the landlord to bail you out but if the economy changes and it looks rough for all concerned then a yarn over the table is a good idea. Better both parties swim slower for a while and neither sinks. Good times will come along again later.

Billy Boy
24-10-2007, 09:28 AM
Giday Blocky. I bought a bank building a while back. While I was inspecting the
joint they showed me this room full of money, heaps of the stuff.
So if ya need some, give me a call. I know where there's a room full of it.
Cheers & Beers
BB