Object with tenant VS without tenant
Alexey Lazutin, Head of Investor and Tenant Representation at IPG.Estate , spoke about the nuances and differences of buying commercial real estate with and without a tenant with Property Valuers.
If an investor is going to buy commercial premises with a tenant , it should be understood that they will have to pay more than for an identical premises without a tenant. An attracted tenant increases the value of the premises. Buying without a tenant is cheaper, but imposes more risks on the buyer. So, you can face the absence of a client and downtime of the premises.
The investor needs to decide on the goal: to preserve or increase capital. If conservation is a preference, buying space with a tenant would be wise.
Confidence in the acquired business: a checklist
It is easy to check the liquidity of the object and the stability of the tenant if the lease agreement for commercial premises was signed long ago.
First, we check according to bank statements whether payments were made on time.
Next, we study the lease agreement: the terms of termination, the terms of the lease, whether this is the first tenant, whether there was a series of short-term agreements.
We make sure that the premises are used for their intended purpose, how much money is invested in repairs. If the tenant has made a serious investment and the property remains versatile, it is definitely worth investing in.
Another thing is if the tenant has equipped the area with equipment that is difficult to dismantle, for example, sinks for a beauty salon. Cosmetic repairs in the event of a change of client are indispensable. The contract should clearly spell out the rights and obligations of the parties, including the conditions for the dismantling of such equipment, it is determined at whose expense the premises are brought into a rentable form after major work.
If a number of these aspects are not documented, then the professionalism of the seller is called into question, and hence the service life of the premises. Any actions of the tenant must be controlled by the owner, and the conditions for their implementation must be fixed.
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