Is the rent as dependable as it looks?
The advertised return is only a starting point. You’ll want to understand who pays the rent, whether payments are up to date, and when tenants could leave. Your professional advisers can help review the leases and explain how much of the income depends on one tenant.
How much money is actually left over?
Rent first pays the costs of running the property. Loan payments, money for major repairs, taxes and other commitments then reduce what may be available to owners. A building can show a profit from operations while still needing extra cash from its investors.
What if the empty space stays empty?
Potential rent is different from rent already being received. Finding tenants can take time and may involve renovations, incentives and fees. Ask how the investment would cope if leasing takes longer or costs more than expected—and who would cover the gap.
What happens when something needs replacing?
Routine repairs are different from replacing a roof, elevator or heating system. A repair fund is helpful, but it may not be enough for a large bill. A building specialist can help explain what work may be needed, when, and what it could cost.
Are you buying a building or a company?
These are different transactions. Buying company shares may also mean taking on the company’s history, debts and other obligations. Your lawyer and accountant can explain what you would own, what you would owe and how much cash is needed at closing and afterwards.
How does the borrowing work?
Ask how much must be repaid, when the loan ends and what happens if you cannot refinance. A seller’s offer to lend money or support income also needs careful review. If retirement savings are proposed as a funding source, specialist advice is needed before assuming that arrangement is available or suitable.
Could you manage a less favourable outcome?
Imagine a tenant leaves, borrowing costs rise or a major repair arrives earlier than expected. How much extra money might you need? Could you sell if your circumstances changed? Working through these questions with your advisers can help you decide whether the commitment fits your life.
Conceptual sequence only; no property-specific financial figures are used.
QUESTIONS TO HELP YOU DECIDE
What should you ask?
- How much rent is actually being received?
- What costs are missing from the operating budget?
- How much money will I need before the property supports itself?
- Who funds unexpected costs?
- What would make this investment unsuitable for me?
Use this guide to understand the topic and identify what needs checking. Your own circumstances and the applicable documents determine which choices may fit.