I would like to know if any one can give me any advice on this. I am presently trying to purchase a commercial multi tenant building and my ROI. would be around 9.5% it is a fairly new center. Is this a decent return?
Depends… By ROI, do you mean return on your downpayment or cap rate? It’s hard to say without knowing the area, the area vacancy rates, what you are responsible for providing, the type of tenants that are in there and what the escalation clauses are. You have to provide more details.
The property is in the greater Toronto area. It is being occupied by medical practicers ,ins. broker and restarant, and that would be return on investment.
I think that in this market, that’s a decent ROI for a good quality building in a decent neighborhood.
Be aware that listing agents nearly always minimise expenses, so you are advised to verify expenses independently. The place may cost more to run than you are being told. Your ROI will evaporate if the agent didn’t include power, insurance, property taxes, and repairs into the expenses.
yes of course, this is all nnn lease , thanks for your comments
In the other thread, you said you owned many commercial properties. With that experience, shouldn’t you know whether 9.5% is good or not?
thanks for your comment, they were willed to me
That’s a valid point. As in any biz, you can make your bottom line look good temporarily by stopping the capex and general maintenance expense, a bit before offering in the market. Besides due diligence on your own, ask for a history of capex and maintenance expenses done on the property and see if they are trending downward.
If you put $ down simply subtract the NOI from the down payment and whatever profit you come up with divide it again by the down payment. Then use common sense…If you had 9.5% roi in a bank account I think you would be satisfied but if its anything less than 5-6% it may not be worth your time. But as stated above ensure that expenses arent being reduced. Commercial-Commercial(shopping ctrs, offices) is stable but still kind of iffy when trying to occupy it…I would try APTS because thats a basic need, therefore easier to occupy with the right promo and location.
IMO 9.5% ROI is not something I would touch. Mezzaine financing is like 20% and here they’re offering 9.5%? I can’t stand the GTA. I used to live there and nothing made sense, so I got out of there instead of banging my head against the wall. So, they say 9.5% ROI to make a 6 cap building look better. You go to First National and they lend you 75% LTV at 5%. So, you end up with about 9% ROI on 25% down on a 6 cap building (theoretically) . And the odd thing is that Toronto properties are all like that.
But, it’s not really a 9% ROI. You have to pay several points to get the loan, you have to pay for the reports, you have to pay provincial land transfer taxes plus now a municipal land transfer tax (if it’s not a share transfer). And, don’t forget amortization at the end of the day. ROI doesn’t give you cash flow if it’s all gobbled up by amortization. And the real kicker is when one of the tenants declares bankruptcy and moves out. Now you’re paying for a empty unit for several months. Also, if the fire code changes or there’s a roof problem, you’re gonna be out a lot of money.
I don’t know why people still see an appeal to live in Toronto? I moved to Windsor and it’s easy to find 10+ cap buildings or buildings that go beyond that after rehab. You have the same beautiful waterfront skyscraper skyline when looking over the Detroit river at Detroit. You have the same architecture. Belle Isle sort of reminds me of Toronto Island. You have dozens of wineries in the suburbs. Beautiful parks, four casinos, horse racing, marinas, many lush golf courses, and anything you can imagine. Many places to see plus a Metro Detroit region of over 5 million people. After visiting Windsor for the first time, I said I’m out of Toronto and sold everything and moved to Windsor in a couple months. I don’t understand how people can live in a city like Toronto with those kinds of real estate prices…
David
Realtor, Landlord, Investor
Correction: Subtracting your Loan Payment(annual) from the NOI would give you a profit. Divide the profit by the down payment or the $ you put into it and it would give you a return %. I would agree with sticking with something above 10% (and 9.5% would be pushing it unless you plan to bring value to it)…Only because commercial loans already charge around 7% for the loan (after giving you only 80% LTV) so also keep in mind the OPM which should min. all risk to a degree anyways…Hope that helps