An interesting commercial investment - too good to be true?

Hi all,

Wondering what your thoughts are on this property for sale:

Prime Sydney Metro Education Investment - Burgess Rawson

they are claiming in the ad that they are expecting 7-7.5% yield. This sounds too good to be true for a commercial investment in a location in a growing sub-area of Sydney Metro. Its got a tenant going until 2026 with potential to 2035.. Apparently a school that has being doing reasonably well and is growing. Education sector has been bursting at the seems with the demand for schools, so I don't see the tenant defaulting any time soon unless there's something going on I don't understand?

Assuming typical cost of funds is about 4.5-5.5%, and apparently its possible to find 3.8% if you're happy to go 50% LVR! This one looks very good.

Please advise anything glaring that I am missing.. maybe the lease is well above market rate?

 

2m+ to play. Wonder what the bodycorp is like?

 

I thought of this.. maybe their 7-7.5% yield is a gross yield number. Substantially less attractive as the holding costs would be massive..

 

7% is wishful thinking.

You couldn't put a number on it until you'd completed your due diligence on the lease and lessee.

 

The yield in an advert would always be gross yield unless stated differently. You would then hope the lease requires the tenant pays the outgoings.

 

Unlisted property funds typically give a good yield.

The catch is that they are generally illiquid investments and hard to exit from. So the premium you can enjoy from the yield is ordinarily the trade off for the lack of marketability.

Nothing for nothing.