Market Insight: How much can signing an under-market lease impact the value of your property?

How much can signing an under-market lease impact the value of your property?

In today’s market, most industrial buildings that can be delivered vacant at close of escrow, sell for a higher price than fully leased buildings.  Of course there are exceptions, but you definitely want to run the numbers and talk to a professional before committing to a term lease.  If you sign a lease that limits your property’s income potential, investors will be less likely to pay the price you think your property is worth.  

The reason why a vacant building is often worth more than a fully leased investment, is that user buyers only need a 10% down payment with SBA lending.  This is the major difference from traditional financing a typical investor uses to secure a property.  Conventional loans typically require a minimum of 30-40% down.  This of course depends on the term of the lease(s) in place, strength of the tenant(s) and the location of the property.  In most cases, with rent continuing to grow annually around the County, a business can buy a property and pay essentially the same as they would if leasing.  Instead of it being a lease payment, it is now a mortgage payment.  Most tenants who have the financial wherewithal to pay today’s monthly asking rates, also have the ability to put down the extra 10% needed to secure a loan.

One thing to note is that a business owner can only qualify for an SBA loan if they can move into the premises within twelve months of closing escrow.  

Lastly, it is also very important to realize our current market that we are in.  There continues to be a major lack of investment properties in the marketplace.  So signing the right deal with the right tenant can end up yielding you far greater returns than a user can pay for your property.  Not only would you yield a desirable stream of income to an investor but the location is superior to other investment deals that are around the country.

If you are considering selling your property in the next 12-24 months, it is a good idea to sit down with an experienced broker to strategize the best approach to maximize value of your property.  My team is happy to put together a complimentary evaluation for you and your family, to be sure you are in the best position to maximize value of your property.  Call me directly on mobile at 858-722-3198 or send me an email, ajize@voitco.com