Beginner’s guide to buying a commercial property for investment - Part 4: maintenance costs, refurbishments and outgoings of commercial property investment

Beginner’s guide to buying a commercial property for investment - Part 4: maintenance costs, refurbishments and outgoings of commercial property investment

Commercial property maintenance costs

Typically, the maintenance costs are not covered by the owner the allocation of responsibility for the particular repair or maintenance action will be prescribed in the Leasing Agreement. The tenant will generally be required to keep the premises up to the relevant health and safety standards and is responsible for any refurbishments which will usually require approval by the landlord, which again should be specified in the Leasing Agreement. However, if the commercial property that you are considering purchasing is rundown and will require costly refurbishments it is likely to deter any potential tenants from leasing it as they are usually aware of how costly it will be for them and thus select a property that is already in good condition. Furthermore, especially in areas where there is a high vacancy rate, if the lease is coming to an end the owner may decide to undertake refurbishments in an attempt to retain the tenant rather than have a vacant property.

Refurbishments

Make a detailed condition report of the property before entering into the lease. The condition report should document the condition of the premises at the time the tenant takes control and before the tenant makes any changes. Also just like a residential property, take date-stamped photographs for yourself and the tenant for a visual record of the condition in case a dispute arises and photos are needed as evidence.

Many premises will need fixtures, fittings and services installed. Who is responsible for the fit-out costs will be determined by negotiation and documented in the Lease Agreement between the tenant and the landlord. As the owner you may also want to specify which tradespeople can undertake any refurbishment work to ensure that the work conducted to your asset is of high quality. Some commercial property landlords (especially shop or shopping centre owners) will also require that the tenant renovates the premises on a regular basis (as you agree in the lease agreement) to ensure that the property remains in good condition and can continue to attract quality customers and tenants into the future.

Note: refurbish or refitting requirements in the lease agreement will be void unless the relevant clauses provides sufficient detail to indicate its nature, extent and the timing or any refit or refurbishment. Furthermore, the cost that the tenant is required to contribute towards the cost of any of the landlord’s finishes, fixtures, fittings, equipment or services can be voided unless the landlord notifies the tenant of these costs in the Disclosure Statement that is given to the tenant.

Outgoings

Outgoings such as council rates, insurance, repairs and maintenance are typically paid by the tenant in accordance with the Lease Agreement. This is unlike a residential investment property where these costs are borne by the owner.

Find the full guide here: Commercial property buyers - guide for investors

Back to part 3 - Lease duration, quality of tenants and purchase costs of commercial property
Beginner’s guide

Continue to part 5 - Lease agreements, permissible activities and use of common areas

Are you looking to finance a commercial property? 

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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.    

Find the full guide here: Commercial property buyers - guide for investors

Back to part 3 - Lease duration, quality of tenants and purchase costs of commercial property

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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Beginner’s guide to buying a commercial property for investment - Part 2: Types, returns and risks of investing in commercial property

Beginner’s guide to buying a commercial property for investment -Part 2 Types, returns and risks of investing in commercial property

Types of commercial property

There are three main types of commercial property these are: office, retail and industrial.

However, there are many other specific types. The type of property can be important from a finance perspective as banks and lenders do not like to finance some types of commercial property or may require you to contribute a larger deposit (so the loan to value ratio is low).

Returns from commercial property

Returns (% lease/rental yield) from commercial property are typically higher than that rental/lease % yield from residential property. This is because commercial property is considered as higher risk (than residential property) and this compensated with a higher return. Commercial yields vary and typically become depressed with capital gains (like residential property) but can be in the range of 6% to 10% compared to that of residential property that may range from 2% to 5% (as a general guide).

Risks of investing in commercial property

The higher risk associated with investing in property comes from two main sources. The risk of vacancy and the risk of not being able to sell it quickly. Unlike residential property in Australia’s major cities the vacancy rate of commercial property can be much longer. Commercial property can be more impacted by down turns in the economy, whereas people still need a place to live regardless of economic conditions.

Find the full guide here: Commercial property buyers - guide for investors

Back to part 1 - Introduction to commercial property investment

Continue to part 3

Are you interested getting commercial property finance? 

Oak Laurel have commercial property finance specialists that can help make comparing and obtaining the right commercial property finance as easy as possible. Contact an one of  Oak Laurel's commercial property mortgage brokers.

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Beginner’s guide to buying a commercial property for investment - Part 1

Beginner’s guide to buying a commercial property for investment -Part 1

Most property investors get started by investing in residential property. It is usually the familiarity with residential property through being a tenant in someone else’s investment property and then buying your own home that gives potential property investors the understanding and confidence to purchase residential property as an investment.

Unless you run a business that leases a commercial property or are involved in the part of a company that deals with lease of its commercial property you probably will not have the same familiarity with this property type(s). This does not mean that commercial property cannot be a good investment but it is prudent to do some research and understand any potential investment before investing.

Increasingly it is not just Australians that see the value in investing in Australia’s commercial property. Foreign buyers are increasingly showing interest and investing in Australia’s commercial property market.

Commercial property is a bit different from residential property in the leasing terms and conditions, GST implications and where the responsibility lies for the building expenses.

This beginner’s guide to buying a commercial property for investment describes some of the issues that you should consider when considering purchasing and leasing a commercial property.

This is not an exhaustive guide. You should get professional advice before proceeding.

Continue to part 2 - Types, returns and risks of investing in commercial property

Find the full guide here: Buying a commercial property - guide for investors

Are you interested in financing a commercial property? 

Oak Laurel finance brokers have commercial finance experts that can help smooth your experience when comparing and obtaining commercial property finance. Contact an Oak Laurel commercial property finance broker.

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Residential Construction Commencement Quarterly Record

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Residential construction commencement levels reach new high

Residential construction commencement levels in Australia have reached a new quarterly record high during the September quarter.

Australian Bureau of Statistics data shows that across Australia 55,532 dwellings commenced in the three months to the end of September 2015. This is an increase in construction commencements by 0.5% compared to the June quarter. Nationally across the previous 12 month to the end of September 2015 construction commencements rose by almost 11% to 215,329. The year to end of September value is 15% above the previous record of ~187,000 new dwelling commencements in 1994.

At the national level new dwelling commencements may have reached new highs but on a State by State basis the levels varied greatly.

Construction commencements by state were as follows:

• Northern Territory +17.4%,
• New South Wales +2.4%,
• Western Australia +1.7%,
• South Australia +1.2%,
• Australian Capital Territory +0.4%,
• Queensland -1%,
• Victoria -3.8 %,
• Tasmania -20.7%.

The Housing Industry Association has forecast that in 2016 Australian will maintain strong levels of new dwelling commencements though unlikely to reach new highs.

It is forecast that 2016 will bring a change in the mix of what is built and large geographical divergences across states and territories.

It is forecast that there will be increases in the short term for: detached houses; semi-detached dwellings (of two storeys); and units of one or two storeys. Geographically, the eastern seaboard markets are likely to remain strong, with some potential for the southeast corner of Queensland but New South Wales and Victoria remaining the strongest housing markets.

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Melbourne property prices on upward trend

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Melbourne property prices show clear upward trend

Melbourne property prices show a clear upward trend after hitting a low point after previous highs at the end of November 2015. As of 20 Jan 2016 Melbourne property prices are just shy of the previous record highs that occurred at the end of October 2015 according to property price monitor core logic.
Sydney property prices continue to soften and may be plateauing. No definitive trend can be observed in Perth’s property prices over the past few months. Brisbane has shown a general upward property price trend since mid 2015 but has dipped off previous high seen towards the end of December 2015. This follows data that Melbourne’s rent prices are rising in Dec 2015.
It should also be noted that this is the time of year when property sales (both auctions and private sales) are lower than average. When the peak selling and buying season arrives we will be able to get a fuller picture of where the property market is heading and at what rate.
“The data shows prices show a moderate and steady increase in the property prices in Melbourne with nothing for policy maker to be worries about” said Dr Nigel Abery (Ph.D.)
“Melbourne appears to be the best performing property market in 2016 with prices and rents increasing at a moderate and sustainable rate.” said Dr Abery
“It is important that property investors remember that the capital cities are not homogenous property markets, some suburbs will be increasing whilst others decreasing in price.” said Dr Abery
“Property is a long term investment. Australia’s population growth make investing in property in Australia’s major cities a sensible choice. These small rises and falls in property prices observed recently will seem insignificant over the longer term.” said Dr Abery

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The post Commercial property purchases popular among foreign buyers appeared first on Oak Laurel.

Commercial property purchases popular among foreign buyers

All of the focus on foreign ownership has been on residential property and the Government forced the sales of foreign owned residential property has made front page news. However, not much attention has been focused on foreign ownership of Australian commercial property. Commercial property in Australia remains as popular as ever according to an analysis by CBRE.

Figures show that the sale of office, industrial and retail property valued at over $5 million totaled $28.4 billion during the 2015 calendar year. 

These values are only 4% less than 2014’s  record sales of $29.6 billion.

According to the CBRE’s analysis, 2015 had the greatest market share of foreign investors investing in commercial property with $11.7 billion in purchases equating to 41% of the total commercial property sales in Australia.

It has also been observed that Australian investment is also flowing offshore in what is now a globalised market place.

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