When investing in industrial or commercial property, there are a number of key tips that will go a long way to assisting the intrepid investors playing in this market.
According to Org Geldenhuys, MD of property management and development company, Abacus DIVISIONS, one of the first things to consider is to find financially viable tenants.
It is important to make sure that the tenant you have in mind will survive your bank’s scrutiny.
“Bankers,” said Geldenhuys, “look for tenants with strong and reliable cash flow and a minimum of a 3-5 lease period – and escalations on the rate that are higher than inflation.”
The next point is to ensure that you have your deposit at hand, and are in a position to understand all the financial requriments.
The investor will probably still have to put down a 30% deposit in cash to get the deal off the ground, as long as the payments from a tenant, or tenants, can cover the bond payments.
“Banks generally proceed on the basis that the rental income will need to cover bond repayments on a 10 year pay-back scheme, at a rate linked to the bank’s prime lending.
“If a monthly shortfall on the monthly payments is uncovered, then the investor will have to provide the additional equity, or find cash flow from an alternative source,” noted Geldenhuys.
As we all know, location is one of the most important considerations when it comes to investing property. These days, largely due to crime, gated office parks are known to provide better returns than standalone properties.
Gated parks also share the costs of security – freeing up additional funds for the investor. But, in most cases they also provide other shared services such as fibre and telecoms, as well as property management and services fees.
“Another key factor is maintenance. There is no way around this. If you are unable to keep tabs on the maintenance required, it would be wise to hire a management company that can assist on this front, as well as other issues.”