So… You’re thinking about investing in commercial property?
Commercial property can be appealing as it typically brings in a better income than residential property. In fact, a lot of our clients invest in commercial property for just this reason. However, like all investments, commercial property carries risk – the main one is that it is generally more difficult to re-lease a commercial property than a residential one.
When thinking about buying commercial property (or any property), you want to know exactly what you are buying. For this reason, it is helpful to have a team of experts around you who can advise on the various considerations, including a Mortgage Broker or Banker, Conveyancer or Property Lawyer, Town Planner, Accountant and, dare I say it – a Financial Adviser.
Things to consider before buying commercial property
1. Cash requirements
Understanding your lending situation and how much cash you will need to proceed with the purchase is critical. Your Mortgage Broker or Banker should be able to help you work through your cash requirements and advise on what your deposit needs to be to achieve your desired interest rate. It is not uncommon for a commercial property purchase to require deposits over 20% (especially specialist assets). Do we need to explain why? Is there a risk factor?
2. The contract of sale
Ok. It sounds obvious, but you would be surprised how many people proceed with a purchase without actually knowing what they are buying. Having a Conveyancer or Property Lawyer review your contract of sale and explain the different considerations is critical. Should we mention zoning? Covenants?
3. The lease agreement
A Property Lawyer can help you assess the lease agreement. Lease agreements work differently in the commercial space and are all unique, unlike residential leases, which fall under the Residential Tenancies Act. So, it's essential to understand precisely what you're entering into and the agreement you're taking on.
4. The development potential
If you have development hopes for the property, even vague ones, talk to a Town Planner. They will be able to assess the site's development potential so you know what’s possible and what’s not.
5. Your purchase structure
Your Accountant should be able to advise you on the tax considerations and what sort of legal structure you should use to purchase the asset, whether this is a family trust, company or just your name.
6. What happens if the property is vacant
Before buying a commercial property, you want to be confident that you have adequate cash flow available to hold the property if the tenant leaves. Your Financial Planner should be able to prepare these forecasts and tell you what you need to know.
Here at Angel Advisory, we help our clients work through these types of considerations every day. If fact, we’re a bit like Financial Project Managers. Because we intimately understand our client's financial situation, goals, aspirations, values and plans for the future, we can look at the potential, crunch the numbers, weigh up risks and make good decisions.
Happy Hunting From your friendly team at Angel Advisory The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where applicable, seek professional advice from a financial adviser.
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