8-10% Return

Do they still exist?

 

Deer Park, Victoria.

 

Broken Hill maybe; but I wouldn't recommend the place. You can find 8% in some regionals if you're lucky but 10 is probably asking a bit much.

 

I would say yes
1)Regional
2)Low land component (some high rise apartments)
3)High risk, eg Mining towns or speculative invesments

 

Are we referring to commercial properties (since this is under commercial property section)? Something like this has 8% return but I guess the vacancy rate can be high.

http://www.realcommercial.com.au/property-offices-nsw-baulkham+hills-501633785

 

Of course they do..
I always work off at least 7.5% yield as a minimum for my clients.

 

metro Adelaide

 

Commercial, 2.5-3.0m price range.

 

How about this one?

http://www.realcommercial.com.au/property-retail-nsw-warrawong-501240715

 

Nice find dude. I guess they do exist. Although having a single tenant is pretty high risk no?

 

Definitely still exist all over the place - the difficulty is sorting through the filfth to find quality properties with strong tenancies in place.

I'd say the average places client's are buying are high 7's to low 8's - but certainly are some more riskier properties available towards 10% net.

 

What would you consider a high quality tenant/property?

 

One on a strong lease which is likely to not go bankrupt during said lease and foreseeable that they would renew.

ie, a Civic Video on a 1x1x1x1 lease - rubbish
Supermarket on a 10x10x10 lease - potentially a strong tenant.

 

You're not going to get a strong lease & a strong tenant with a high yield.

I'd steer clear of anything that involved the outdated technologies like video stores - bound to fall over or walk in the near future due to competition from online sources like netflix etc.

A strong covenant is always great but not the norm with high yielding properties.

 

What tenant/property would you consider bluechip in the commercial world?

 

I think government tenants, banks and supermarkets (as suggested by Corey) are better tenants but I don't think you can get 8-10% returns for these types of tenants but I don't think you can get 8-10% return for these types of tenants.

 

And adding

Avoid tenants on multiple options

 

Strong well established multi nationals or government but as stated above, yields may not reflect the tenancy

 

Its a balancing act between tenant quality and yield sometimes. The same can sometimes be seen in residential.

 

Unless you have market rent reviews at option or every 3 years. I am not anti-option but having 12-6 months notice is generally sufficient to determine what you want to do (as a lessor) - you can always couple that with a demo clause (when negotiating your lease) or if you have plans to refurbish, they just go on hold (and you don't suffer a loss of rent/vacancy/incentives/leasing costs etc).