Beginner’s guide to buying a commercial property for investment - Part 3: Lease duration, quality of tenants and purchase costs of commercial property
Lease duration
Commercial properties typically have longer leases. It is
fairly common for a commercial property lease to have an initial lease period
of 5 years with an option to renew for another 5 year. This is unlike
residential property where rental leases are typically for 12 months or 6
months followed by month to month or resigned for another 6 to 12 months.
Quality of tenants
Just like residential property, commercial property tenants
are not all the same. In commercial property leasing, government and corporate
tenants are the best tenants. They are unlikely to default on the rent and are
likely to be long term tenants. Small and new business are higher risk and may
be more cost conscious that large established business or government tenants
with established and secure cash flows.
Commercial property
purchase costs
Quality, well located commercial properties can be expensive
but can have yields proportionately. If buying an entire building or lot is out
of your price range there are often smaller and cheaper strata title premises
available that may suit your budget. Different areas will have different cost per Square meter. This will be related to the rental lease per square meter. Checking the price per square meter of comparable sale in the area can provide a likely sale price. However, if
there is an existing long lease with a quality tenant this can also influence
(increase) the purchase price compared to a vacant property or where the lease
is coming to an end and unlikely to be renewed.
Find the full guide here: Commercial property buyers - guide for investors
Continue to part 4 - Maintenance costs, refurbishments and outgoings of commercial property investment
Are you interested getting a commercial property loan?
Oak Laurel have specialist commercial property finance broker that can help make comparing the different loans and obtaining the right loan for your commercial property as simple and easy as possible. Contact Oak Laurel to find out more about commercial property finance: Australia.
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