But there’s a caveat as well. Not doing your own research and due diligence can prove to be a costly mistake.
Angus Raine, executive chairman of the Raine & Horne Group, has a word of advice as carried in a previous report in Fairfax Media.
“Look carefully at the location and demographics of the area you are considering. Consider carefully the vacancy risk. Check the length of the lease terms for the current lessee and whether there is an option to renew,” he advises.
One must also assess the financial position of the lessee to see if they have a sustainable business and if they have capacity to keep on paying the rent.
“You need to do your due diligence on the tenant,” adds Raine. “If they are in manufacturing, is it smart manufacturing or are they making or selling something that is part of a trend that will go out of fashion? You wouldn’t want a tenant whose business was selling DVDs or who owned a Kodak franchise.”
“You often find special clauses, such as if the property is sold, the tenant has the first right to buy. Another may be that there is no market rent review if the tenant exercises a further lease term. These don’t always jump out at you,” Nucara says.
Also ensure the lease complies with the relevant state legislation.
If you do decide to buy a vacant property, Nucara says it’s vital to investigate how many other similar properties are available. This will influence the level of demand for your office or shop and the size of the incentive you might have to offer to entice a tenant.
Also, bear in mind that prices tend to be higher and yields lower for good-quality, well-tenanted properties, especially if the tenant is a big name like Woolworths or Coles.