Entry Level Office Investment

Discussion in 'Commercial Property' started by jaydee, 7th Nov, 2019.

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  1. jaydee

    jaydee Active Member

    Joined:
    25th Mar, 2016
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    Location:
    Perth
    Hi from Perth

    Although not an active poster, I have been a long time member of this and the former Somersoft forum. As a past property enthusiast I am now retired and looking to offload properties over the next few years (to minimize CG tax). One of these properties is a small office suite in Nedlands, Perth which is currently leased and I have advertised for sale on a couple of websites as well as this forum.

    Whilst most of my properties were residential, I bought this property back in 2003 as an investment in a family trust. As a consultant, I also had the intention to use it for my business purposes, however, it has been leased for the majority of the time so I never actually used it myself.

    I initially used an RE Agent to manage the property, however, I have been self managing for the past 10 years and can happily attest to it being pretty easy other than when tenancies end (usually 2-3 years). Even when vacant, I find I can action any enquiries and inspections from prospective tenants a lot quicker that most agents.

    The Perth property market is pretty flat and similar properties were being advertised for $170-180k approx 5-6 years ago. The property is currently leased until Aug 2021 and would preferably suit an investor who may also wish to utilise the office in the future for their own purposes. There are a couple of other offices for sale in the building via RE Agents.

    Based on the asking price ($130k), a Capital Growth of 6.4%pa can be demonstrated over the time I have held it. The current lease was discounted to 8% (inclusive of outgoings except power/internet), however, the previous leases were typically 7.1% net with Lessee paying all outgoings. Outgoings are approximately 5% which might seem high, however, it is a Serviced office which includes a receptionist and secretarial services being available so ideal for the small 1-2 person business requiring minimal set-up.

    Anyway, I have put full details in the ad in the for sale section of this forum and I am happy to address any queries (within reason) on this forum or via PM.
     
  2. AndrewB - Develop a Life

    AndrewB - Develop a Life New Member

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    12th Nov, 2019
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    Location:
    Sydney
    Hi Jaydee,

    Great idea posting this ad for your property in here. Although I am not interested in this particular property, do you own any other commercial property that you wish to sell?

    Is your whole portfolio in Perth?
     
  3. jaydee

    jaydee Active Member

    Joined:
    25th Mar, 2016
    Posts:
    35
    Location:
    Perth
    AndrewB,
    Sorry, this is the only commercial property I have and it was bought on a whim (with cash) from a 2cm ad in a local newspaper about 16 years ago. It had a tenant and at the time it had a 12.5% net yield.

    My properties were mainly resi in Brisbane, Melbourne and Perth, although I only have Perth properties remaining now which I will progressively sell off over the next few years as their leases end and/or become vacant.
     
  4. AndrewB - Develop a Life

    AndrewB - Develop a Life New Member

    Joined:
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    Location:
    Sydney
    Hi Jaydee,

    No worries, thanks for sharing. Well it sounds like you are doing pretty well. Great work!
     
  5. jaydee

    jaydee Active Member

    Joined:
    25th Mar, 2016
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    Location:
    Perth
    Asking price has recently been reduced ($125,900), however, I am fairly keen to sell and have this settled before the end of the current financial year, so this could be a good entry level investment for someone.
     
  6. Beano

    Beano Well-Known Member

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    If you could get the current lease to sign up a longer lease it will appeal to investors.
    Alternatively you could offer to guarantee the rental for a certain period to appeal to both owner occupier or investor.
    Market rental based (I am not familiar with the Perth market rental or the Perth Yields)
     
  7. jaydee

    jaydee Active Member

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    25th Mar, 2016
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    Location:
    Perth
    Beano

    Thanks for comments. Yes, a longer lease may appeal to prospective investors, but given the current lease was discounted for this tenant, an extended lease would not necessarily be a good option for the Buyer.

    A Rental Guarantee is possible should a prospective Buyer request it for financing or other reasons, however, any investor should be aware that the purchase price is normally adjusted (upwards) to incorporate the said rental guarantee.

    Rental Guarantees were a great ploy when selling off the plan where the developer didn't want to discount the purchase price (coz it would set the reduced price for all other units), however, the RG could often be paid 1 or 2 years in advance which allowed the prospective purchaser to appear to have a discount at time of settlement due to improved cashflow.

    Ultimately, RG needs to meet market rental at some point.
     
  8. Beano

    Beano Well-Known Member

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    Maybe show a copy of a market valuation by a registered valuer .
    That will give comfort to a proposed purchaser.
     
  9. jaydee

    jaydee Active Member

    Joined:
    25th Mar, 2016
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    Location:
    Perth
    Beano,

    Thanks again for positive comments. The property will sell itself with the supporting documentation and buyer support that I can provide including any valuation that a genuine buyer may request.

    The issue I am finding is actually having prospective Buyers arrange to view the property in the current Perth market. The situation is improving and I do get some enquiries but IMO they are not serious enquiries unless after addressing their initial queries they do not request to view the property.

    When Perth booms again (hopefully soon!) there will be plenty of enquiries from investors, however, when the market moves so will the asking price especially given that it is tenanted until Aug 2021.

    I would prefer to offload it in this FY, so my reduced selling price will be to some investors gain if they choose to act in the current FY.
     
    Beano likes this.