Does your commercial investment property needs an exit strategy?


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When deciding where and why to buy a commercial investment property, there are a lot of things to think about. One expert says that one of the most important things to think about is how to get out of that purchase.

Vanessa Rader, at Ray White Commercial, says that the long-term goal for an investment is the most important factor in deciding whether or not it is a good idea. This is because long-term leases can make it hard to see what an asset is really worth after that time frame.

"Many buyers have been misled by the regular income stream they are buying. But what happens when their term is up? Yes, five or ten years seems like a long way off, but what are your options when that time comes?" Ms Rader said.

She told buyers to have a plan for the very real possibility of losing a tenant and to think about how long they should hold on to the property based on its specifics.

"Tenant loss is a big cost for specialized uses, and some assets may no longer be useful when the lease is up," she said.

But a landlord can also take a number of proactive steps to plan a way out of this situation.

Ms. Rader told investors to think about: "What can you do now to figure out what you can do to your property when your tenant moves out? Is there another way to use the land that is allowed by the zoning? Can it be built on?

"Start looking into it and talking to the council as soon as possible so you have a solid plan to make sure your commercial property keeps making you money in the future."

She thinks that this kind of planning is one of the three most important things to think about before making a business investment.

Another big one is location, location, location, which is pretty much the bedrock of the industry as a whole.

"There may be different things to think about depending on the asset. For industrial, it could be getting out and getting to major road networks. For retail, it could be foot or car traffic, the local population, and parking. Childcare and medical services will depend on the people who live in the area. For offices, you might think about transportation, the size of the market, and plans for the future.

When judging the financial health of a commercial asset, it is also very important to know the terms of any leases that the buyer might be taking over.

"It's not enough to know how long the lease is and how much it costs," she said.

She said that investors should ask, "What is the weighted average lease expiry (WALE) and how much does it cost to manage the asset with a professional commercial agent, and what be the future in terms of legal fees, outgoings, capital expenditures, etc.?" This is especially true for multi-tenanted assets.

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