Investing in a commercial unit.

UsBus

I am considering investing in a commercial unit which has a tenant in place. I have bought and sold residential properties before but am wondering if there are particular questions or issues I should be aware of.

The tenant is 6 years into a 20 year lease with a break option after 10. The rental yield is just over 19% after service charges.
My first thoughts would be less than 4 years left before the tenant could decide not to continue the lease. Also the service charges are 3% of the purchase price. I am not sure if these would be paid by the tenant or the purchaser of the unit..?

Could anyone advise if there is anything else I should consider..??

68 lost souls

UsBus wrote: »

I am considering investing in a commercial unit which has a tenant in place. I have bought and sold residential properties before but am wondering if there are particular questions or issues I should be aware of.

The tenant is 6 years into a 20 year lease with a break option after 10. The rental yield is just over 19% after service charges.
My first thoughts would be less than 4 years left before the tenant could decide not to continue the lease. Also the service charges are 3% of the purchase price. I am not sure if these would be paid by the tenant or the purchaser of the unit..?

Could anyone advise if there is anything else I should consider..??

I would consider the liquidity of the current tenant? They may not be able to break before 10years but they could close no?

Cathmandooo

Get a copy of their lease first. Find out if the tenant pays the service charge. Find out who pays the rates, repairs and insurance and if you're liable for a portion of them. How often are the rent reviews?

I'd be looking for proof that they have been paying all their dues and if it's on time.

Find out about their fit out, did they fit out the unit themselves, what is the arrangement for when they leave?

Do as much research on the tenant as you can

UsBus

68 lost souls wrote: »

I would consider the liquidity of the current tenant? They may not be able to break before 10years but they could close no?

Yes could quite possibly happen. The tenant provides serviced offices so they in turn would be relying on a number of smaller businesses. The investment is not huge <140k but the rental yield seems a little too good to be true... I am probably missing some info so will contact the auctioneer to see.

KK4SAM

Just a consideration on the business type.Heard of a guy that was caught out ****ty leased out all his commercial space he had to guy that filled it to the rafters with recyclables and then walked away.Nice bill to get rid of same.

UsBus

Cathmandooo wrote: »

Get a copy of their lease first. Find out if the tenant pays the service charge. Find out who pays the rates, repairs and insurance and if you're liable for a portion of them. How often are the rent reviews?

I'd be looking for proof that they have been paying all their dues and if it's on time.

Find out about their fit out, did they fit out the unit themselves, what is the arrangement for when they leave?

Do as much research on the tenant as you can

Thanks Cathmandooo, very helpful info to working on.