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  • Property-a-holics

    Commercial ROI or yield required?

    Hi all,

    Just working out the figures on an interesting commercial property and was just wondering from those in the know who've purchased what they look for %-wise?

    The annual rent is £14k on a full repair and insure lease until 2028 when the lease is due to expire (unless renegotiated), and the leasees have been in the property since 2000.

    I'm trying to work out what would be a good amount to offer for this property, and it's freehold by the way.

    Thanks.

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    I'm not in the know, but I do have one mixed use property.

    I offered £50k for a small vacant unit listed at £60k with a rental potential of £500 pcm. Someone else paid the full asking price within a few days.

    I rejected a vacant cafe and tenanted flat at £130k. Combined rental income was £10.5k.

    I bought a mixed use at £168k, commercial income £12k, residential £6.6k plus one vacant unit. Commercial lease was only 1 year left of 10, but I'm now in the process of renewing for a further 10. I think the short lease kept the value down.

    My only local comparable is another mixed use. 2 bed flat sold for £90k, 1 bed flat sold for £70k - rental around £550/£450 pcm. The commercial unit with a 12 year lease at £9.6k pa remains unsold at £139k. This is the only leasehold property I have looked at.

    I believe, as with residential, yield varies by area, but a long lease and good tenant is certainly desirable.

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    A good teacher must know the rules; a good pupil, the exceptions.

    Martin H. Fischer

    Any break clauses or rent reviews in the lease ?

    Blue chip company tenant or private individual ?

    Tenant trading as ?

    Any redevelopment possibilities?



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    The area / location (prime / secondary) that it is in will effect the yield that would be used.
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    Anthony Davies

    http://www.CosyDragons.co.uk

    http://www.360Property.co (No UK)

    Follow me on twitter / Facebook / Insta - @CosyDragons

    You should be able to google what average commercial yield is in your area and apply that to the annual rent to get an approximate valuation.

    Say you are getting 14k per year and apply an 8% yield you would be at a valuation of roughly £175,000 for it.

    But you should try to get the specific yield for your area. Call a couple of commercial agents and they'll tell you.
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    I would be less concerned about who or what the current tenant is compared with the prospects for re-letting if they go.

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    great thread there you have most of the variables the crucial question is how much of a difference in value does each variable make given the area - and indeed the area too.

    we've recently bought an office in centre of Burton on trent - rent 38kpa lease was just a 3yr lease with 1.5yrs left, although they wanted to re new and had been there 8yrs. (the purchase wasn't subject to renewel so we took a small risk). 2 floors were vacant and we plan to turn into 5 flats (cost 300k makes circa 500k value in upper parts), planning was already granted. and 6 vacant parking spaces in town centre.

    We paid 400k for it.

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    regards Andrew Peers - property investor / sourcer - 07912674181

    a.peers@seamlessproperty.co.uk

    Property Redress Scheme Number 011436     NLA member 174404

    Thanks for all the thoughts everyone, it certainly has got me thinking about this in another mindset.

    I think Jamie's valuation is probably spot-on. It will be interesting to see what it finally goes for.

    The property is a warehouse which is actually physically connected to the back of a shop I saw today. This is not so good.

    The warehouse is rented by the shop-keeper, and it's a one-off shop, not part of a chain. I have done business with the owners quite recently. This might or might not be a good thing!

    The shop is in a secondary location, the warehouse in a service road behind that and the front of it is right on the road. No parking as double-yellow lines. Not so good.

    Re-letting I feel would be easy as there is so little warehousing of a sensible size (it's either stupidly massive or a single garage size). This is a positive aspect.

    Development potential is pretty good as it's a good area, but I think the lack of pavement between the building edge and the road will always be a problem. So not so good again.

    Looking at the above list and based on the questions you guys have asked me, I think there are more negatives than positives, mainly the right-on-the-service-road location which there is no way around. The building itself has seen better days as well.

    I will see if I can work out any more positives for this, but there do seem to be more neutrals/negatives than positives on this property.

    Thanks all.

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    One other crucial item is the current rent they're paying relative to market rent. If paying above market rates and there's no reason why (amazing high st location for example) then they might be more likely to find another venue and you have no ability for an uplift with any new negotiated contract.

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    regards Andrew Peers - property investor / sourcer - 07912674181

    a.peers@seamlessproperty.co.uk

    Property Redress Scheme Number 011436     NLA member 174404

    HI Andy, very good point about the rent they're paying. As the warehouse is attached to their shop there may be a small premium for that.

    I've just found a similar size property a couple of miles away, bigger by 260sqft which is £1500pcm, but has the added benefit of parking around it.

    So on the face of it, due to this property's location £1166pcm may be a bit light? It's a toughie, as I'm a bit more interested in it again now!

    I forgot to add in that I could always find a use for it for storage if it ever became empty ;->

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