Monday 25 January 2016

Beginner’s guide to buying a commercial property for investment - Part 3: Lease duration, quality of tenants and purchase costs of commercial property

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.    


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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