Guys and gals,
What do you think about this deal?
1) Commercial unit
2) RM200k+, rental close to 2k, in prime area
3) Location quite prime, KL.
4) Next to newly open shopping/commercial/office
5) Leasehold 60+ years left
On the surface, the numbers seems promising. But if you were to explore, what would be the things to look out for?
a) A lot of people are looking to invest into commercial properties, especially after they have purchased some residential deals, and hoping to move to the next level.
But the GamePlan is still very important. It’s really not a matter of affordability of buying the property, much rather, it is about whether there’s still going to be good continuity of rental, be it in upmarket, down market, or even side market.
The reason why investors look into commercial properties is that it’ll be less tenant management, and that in prime areas, it’s more easier to rent out. And if you’re renting to Big Boys (franchises, etc) it’s as good as a Golden Goose.
But the prices of commercial properties nowadays, especially the ground floor, already hitting the million ringgit mark in more decent areas, and most Big Boys prefer ground floors with good frontage, who would be the potential tenants for the unit mentioned above, around 200k+?
This is not to say that there are no good tenants who would rent at 2k per month for the commercial unit… But who would potentially want to rent? And the continuity of rental?
b) There are different definitions of Prime areas. Take Dataran Sunway, Kota Damansara for example. Is it a prime area? Of course it is.
Most of the banks and a lot of franchises are there. But are they equally distributed? And the rental rates, would it be the same for each row? And The Strand is just next to Dataran Sunway. Would it also be considered as prime? What about SunSuria?
Understanding exactly which are the Prime Areas based on your potential tenant’s perception is very important if you’d like to target the prime tenants.
In this regard, it is not so much about affordability, but more on how high the perceived demand is for the area.
And of course, there are a lot of properties next to prime areas. Would these properties benefit from the spillover, or would it be negatively impacted?
c) Leasehold of 60+ years. Would this be a negative or positive factor in acquiring the property? It will again boil down on the gameplan.
Is it a Buy to keep? Or Buy to Flip? How much is it going to cost to renew the lease if it’s a Buy to keep if you’re intending to keep it long term? And would there still be a market to flip to?
And what about financing from the banks? Would there be banks who would be favorable to financing leasehold properties which has only short leases left?