Interest-only investment term about to expire? Here are your options
If your investment only term is coming to an end, it’s important to plan ahead. Learn more about your options so you c...
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Any financial investment is a big decision.If you’re planning to fork out a large sum of your hard-earned dollars buying commercial real estate, you don’t want to get it wrong. Regardless of whether you’re purchasing as an owner occupier or investor, there a few things you should look for in a property to ensure your investment will be worthwhile.
To help you start your search on the right track, here are four important things to look for when buying a commercial property.
The mark of a good purchase is usually how closely it matches what you’re looking for. The key things an owner occupier wants out of a property could be drastically different to what an investor will want, so your first step should be to clearly define exactly what it is that you’re looking for.
If you’re looking to purchase a property to operate your own business from, you should have a decent understanding of what your core needsor requirements are, which will help you narrow down the options. However, if you’re purchasing as an investor, the criteria may not be quite as clear.
By better defining your requirements including what your budget is, the amount of rental return you’ll need to generate and any other key information early-on in the piece, you’ll be far better equipped to sort the good from the bad once you start looking at properties.
Another key factor you’ll need to consider is how much it will cost to operate and maintain the premises. If you plan to occupy the premises yourself, your overheads will represent a significant ongoing cost to your business, so it’s important you develop a rough estimate of how much they’ll be.
It’s a little different if you’re considering buying commercial property as an investment. Unlike residential tenancy agreements, tenants in commercial properties are usually responsible for paying for a range of outgoings such as general maintenance, repairs, council rates, utilities, insurance and body corporate fees.
However, there are still some costs you’ll need to take into account as the landlord—consider the overall condition of the building,as you as the landlord will be liable for any major structural repairs or repairs to common facilities in a shared-tenancy, and you’ll also need calculate what your holding costs will be if the property is left vacant for a period of time.
Just like residential property, location is equally as important when buying commercial real estate.
Economic conditions usually have a greater impact on commercial property than residential property, so ideally you want to find a property that will withstand a market downturn. By choosing a property in a high-demand location, it’s more likely you’ll still be able to find tenants even when you’re up against more competition.
Consider things like accessibility, transport and the availability of on-site parking, as well as any relevant permit or zoning restrictions—if you purchase a property with specific noise or activity restrictions, you may automatically rule out some of your prospective tenants.
Make sure you also consider the range of commercial property for sale throughout the area and how long it takes to sell to get an indication of how difficult it will be to find a buyer if you do to find yourself needing to sell quickly.
As a general rule, bigger isn’t usually better in commercial real estate terms because it’s typically harder to find a tenant. However, if the property is large enough to house multiple tenants, it could be very attractive.
If you’re an investor, a multiple tenancy arrangement can significantly reduce your risk because you won’t be relying on rental income from a single tenant. If a tenant decides to vacate or is late on their instalments, it’s unlikely to have as significant of an impact on your overall finances than it would if you only had a single tenant.