Purchasing commercial property checklist
You intend to purchase a property as a commercial property investment or to run your own current business. What next? Owning commercial Real estate can be very rewarding if you do your homework right. Proper due diligence is essential in making your commercial Real estate transaction successful. To make an appropriately informed decision, you need to have a purchasing commercial property checklist.
Failure to do your due diligence properly can have legal and financial implications in the future.
Items to consider for your purchasing commercial property checklist should include;
Your current economic situation. What can you afford?
To begin with, how much money do you have as a cash down payment and how much can you borrow? What amount of money can you afford to pay off a loan? In addition, lending policies have tightened up recently. Although interest rates have been relatively stable, they can fluctuate. As a result, it may be a good idea to speak to your banking institution to get a good idea of your lending limits.
Location of the property.
Since you’re not living there, the area of the property may not be so crucial. If the property is being purchased for investment, you would need to be confident of a constant pool of tenant demand. On the other hand, planning to occupy the property for your business you would need to be convinced you are conveniently located to be able to service your customers comfortably.
Type of commercial property
The three main groups of commercial property are retail, industrial and commercial office. In addition, there are other smaller groups such as hospitality, tourism, leisure, Childcare, medical, retirement living and boarding houses. Which suits you depends on the return you’re expecting and the risk you prepared to take.
Management of the property
We all want an investment property which is 100% passive. Looking after your property can take a lot of your time and effort. In most cases, the higher the return, the more work the owner has to put in. Excellent Property Management is required to maintain the property and ensure you are maximising the performance and value of your investment.
Do you have the time and are you prepared to do the work? This should be taken into account in looking at employing Property Management.
Buying commercial real estate with other investors.
Many large commercial properties are purchased in syndicates. Are you prepared to work with other property partners? Purchasing property with other people can help you buy a higher-priced property. In addition, what skills or cost savings do they bring to the deal?
The adaptability of the property.
Can the real estate be used for other purposes in the future? Can it be refurbished, extended or developed to attract other higher-paying tenants in the future? Eventually, what are you going to do if the current level of available tenants slows down?
Look at other opportunities.
Keep an open mind and consider other commercial property investment opportunities. Get an idea of what else is available in the marketplace. There may be other properties better suited to your skills and knowledge.
Financing your Commercial Investment
To start with, most investors need some finance. Traditional methods of funding may not suit your situation. Besides the central banks, what are the other financing options available to you for the equity you have? You may need to explore more creative financing to purchase your property. Over the years we have worked with many vendors and buyers to get deals over the line. Besides vendor financing and second mortgages, we have also negotiated a lease to buy options.
Age of the Commercial Building
Buying an older building can get you a higher return. At the same time, it can be more time consuming and have higher maintenance costs. Having a thorough building inspection carried out before your purchase can uncover any hidden surprises in the future. Although difficult to assess you should factor in unexpected maintenance costs in the future.
What is the current zoning for the building and what is the current development approval?
Do the current tenants occupying the area have correct building approval? Many property owners assume that the current tenant has development approval. Two examples that I can give over the years is as follows;
Up to the mid-1990’s several buildings in the Sydney city fringe which were mainly used for clothing manufacture were also used for clothing wholesale. In another example, over ten years ago I had a backpackers centre for sale which had current approval for a boarding house. When I questioned both owners on the legality of the approval, they replied that these businesses have been running this way for over 20 years.
I then made enquiries with the local council on the current approval. Their simple reply was just because they have been operating this way for over 20 years does not mean they have current permission. As far as they were concerned, the businesses we’re working illegally for over 20 years. Consequently needing current development approval to operate.
Commercial Real-estate Lawyer
In summary, commercial property transactions can be complicated with many legal issues to consider. Working closely with an experienced commercial real estate attorney who is familiar with all the complexities of these transactions and property law can save you much time. In addition to the right legal advice in any future commercial real estate dispute resolution in the future.
Is the property currently Tenanted?
Take into account the current length of lease If the property is presently tenanted. Is the rent consistent with the current market? How stable is the tenancy? Is the rent paid on time? In addition, how easy is it to find new tenants at a similar rental if the current tenants decide to leave?
How long do you intend to keep the building?
I have seen many property investors buy an investment without any detailed planning. In most cases, buyers are usually thinking long-term. In short, they typically don’t factor in problems which may occur in the future. Some of these problems could be partnership disputes, needing to sell to free up cash, unexpected escalation of maintenance costs, Council orders etc.
Why you need a commercial real estate investment business plan?
Market conditions change all the time. As such, investing in commercial property can be very complicated for the real estate investor. Rarely treated as a short term type of real estate investment.
Commercial property investment should be treated like a business. Writing commercial real estate industry business plans should include essential items included in a business marketing plan.
This would include items as identifying future supply and demand and cash flow as part of your marketing plan for your target market.
The plan should be as detailed as possible to be prepared for future challenges for current and prospective owners. Some of the items to include in your executive summary are as follows;
What is the investment strategy for the property/properties?
What are your branding and marketing ideas/policies?
How are you going to finance the project?
How is the property going to be managed and by whom?
What are your long and short term goals?
Do you have an exit strategy?
What are your company values and strengths?
What backup plans do you have if things don’t go as planned in the future?
In summary, having a good business plan for the property can save you a lot of time and money if you needed to sell quickly.
Have you got the right real estate agent working for you with your Property Checklist?
As a final point, Having an experienced commercial real estate agent can save you a lot of time. They have gone through this process many times before and can assist you with your purchasing commercial property checklist. More importantly, it will ensure you can achieve the highest possible result in the current market for you.
Like to discuss this further? We would love to help you. Feel free to contact Con Tastzidis via Phone on 02 9882 2221 or email email@example.com or the other contact information on this website for a free no-obligation confidential conversation.