TO HOLD OR TO SELL?

Client: We own a commercial property. Our tenant of 30 years isn’t renewing the lease. A buyer has offered to purchase the property for P30 Mn. Should we sell?

Juan: May I ask—how much were you earning from the tenant?

Client: P290,000/month, net of expenses.

Juan: Based on your current rental income, here’s a quick calculation:

P290,000/month × 12 months = P3.48 Mn/year

If the buyer acquires the property for P30 Mn, they’d be looking at an 11.6% gross rental yield—

(P3.48M / P30M = 11.6%)

That kind of return is rare in real estate. For comparison, Bernie Madoff promised investors 10–12% annually. The difference is: this one's real.

Of course, this is a quick and dirty computation. It doesn’t yet account for potential vacancy, taxes, maintenance costs, or capital gains implications on your end. But even with a few deductions, it’s still a solid yield from the buyer’s perspective—which explains the price they offered.

Unless you need liquidity or have a higher-yielding alternative lined up, you’re better off keeping the property.

Client: If we were to sell, what would be a fair price?

Juan: Good question. One way to estimate this is by asking: How much would someone need to invest in a low-risk instrument, like a 10-year government bond (currently yielding 6.253%), to match your P3.48 Mn annual income?

Here’s the math:

P3.48 Mn ÷ 6.253% ≈ P55.7 Mn

So, to maintain the same annual cash flow using government bonds, you’d need P55.7 Mn. That gives you a benchmark: anything significantly below that means you’re giving up reliable income for a poor trade-off.

Summary:

+ Buyer’s offer of P30M equates to an 11.6% yield—attractive for them, but undervalued from your standpoint.

+ If you're trying to replace the income conservatively, a fair valuation could be closer to P55–56 Mn.

+ Unless you urgently need cash, hold the asset or negotiate for a much higher price.