Commercial property case study

I know very little about commerical property but regularly browse listings. I'm interested in people's thoughts on this:

7B Derby Street, Rockhampton City Qld 4700 - For Sale

Short term lease only, limited floor space with height/space restrictions but nice net return and a low cost investment. I'm not sure of the demand for this type of property? Weak local economy and might have trouble finding a new tenant if it becomes vacant. I haven't checked if it's in a flood zone.

If it was a 5-7 year lease with a 10% net yield you could quickly pay down any debt reducing risk.
I'm not buying, just keen to get everyone's thoughts on these types of properties.
Thanks
Hugh.
@Beano @Scott No Mates

 

It's a little bit odd when the tenant has been there for 6 years but there's no equipment, materials, stock or tools etc in the premises.

Is it owner occupied?

 

Short term lease should be read as no lease in place. I bought a property once with a short term lease and buy the time I settled the tenant had given me notice they were leaving - despite everything looking good from the outset (happened a long time ago).

I also find that cheaper commercial properties (say sub $2m) get a lot of tenant turnover as you are dealing with small businesses who cannot afford to buy the property themselves.

And it looks vacant.

 

Rockhampton, I'd stay away.

I'd be extremely surprised if it wasn't, given where it's on the map.

 

Possibly, I didn't think of that, I thought maybe a small distribution warehouse.

 

Yes, the return looks a little high for such a low entry price. Most of a small investor properties seem to have yields closer to 7-8% net, at least in capital cities.

 

Haha..The residential market is very weak there presently. I'm more interested in how to assess commercial property like this.

 

And if the property loses a tenant it could be empty for two years with a -7% yield including vo's and interest and you then lose another year with incentives and agents commission to get a tenant in the door.

 

Your not selling it to me Ross, I guess that's why I find residential property so much easier. The better tenants on long leases like medical centres and supermarkets are big investments which if you get wrong could set you back 10 years or worse. I thought the entry price, with tenant and 10%yield looked interesting.

 

E grade property, with E grade tenant, in an E grade location.

Looks like a duck, walks like a duck, quacks like a duck......


pinkboy

 

7B Derby Street, Rockhampton City Qld 4700 - Sold
Just to follow up on this thread the property sold within 7 days after receiving multiple offers apparently.

 

Thanks Y-man, if I go down this path it will be using funds secured against a resi property only. I'm not looking to buy there only keen to get some feedback and thoughts on this type deal.

 

This is a pure example of how people buy on yield without considering quality of tenant, lease, location etc. They see "10%" and all else goes out the window. Good lesson to be learnt. Even if it were a longer lease, tenant quality and location are not great. Rather go half the yield for 80% less risk and not have long vacancies. Also looks strata so limited value add available.Buy quality, not quantity.