Things you must know before buying commercial property

5 minutes, 59 seconds Read

Investing in a commercial property requires a lot of deliberation. They are expensive and involve a lot of risk. You will earn a return from them after disposing of them. However, looking for a buyer who is ready to pay the desired amount you quote is not a cinch. A lot of factors are to be considered while buying a commercial property.

The selection of commercial properties depends on the same factors that you use for buying residential properties. However, you will have to be extra careful. At the time of buying a commercial property, you will have to look if it is worth investing from the buyer’s point of view. It is actually hard to make a decision.

Commercial properties do not just include shops, stores, malls and similar commercial spaces. They also include residential buy-to-let properties. However, the latter is riskier than a typical commercial investment. By choosing a commercial property, you can avoid paying heavy taxes on buy-to-let property. Further, the chances of getting a return are pretty higher than that of volatile stock markets such as stocks and bonds.

Location matters the most

The location must be the priority whether you choose a residential or commercial property. This will turn into a doomed project if you end up choosing a location that deters a potential prospect. If you are looking to invest in a high-street store, take a look at the rush of pedestrians. When the foot traffic is high, more people will likely drop by.

Your tenant or buyer would like to see how likely the store would attract people to be able to meet all operation overheads, especially rent. No tenant or buyer will show interest in your store if a few miles away, a shopping complex is under construction. Office building investment is a better investment than a high-street shop or store.

However, if you are looking to invest in such property, you should ensure that it is linked to public transport. Employees should be able to commute without any hassle. Is the station nearby? Can they walk up to your office? If not, can they ride a bus or tram or come by taxi? Is there any restaurant, café or bar or club to socialise with colleagues after work? Is there a parking facility in case anybody wants to come in their own cars?

At the time of deciding on a location, you should put yourself in a buyer’s shoes. Ask yourself what kind of property you want to rent or buy. Which location makes you confident about your business?

Strength of tenant

Your tenant could be anybody, depending on whom you are renting your space. Of course, you do not need to be worried about timely rent payments when you are renting your space to a company. Call centres and supermarket chains would like to use your property for a long time, so there is not much risk of losing your rent payments.

However, when you rent out your space to an individual like an independent retailer or storekeeper, make sure that you do not struggle to be paid on time. Even start-up businesses are at risk of renting out their space. It is vital to check the credit score and to repay the capacity of your tenant.

Do not forget that it is imperative to have been receiving rent every month smoothly because it will help you repay the debt that you took out to buy the commercial space. You might have been reliant on commercial property finance to buy space.

Commercial property loans could be very expensive. Keeping up with payments cannot be possible if you do not consistently receive rental payments. In fact, the size of the monthly instalment is decided based on your current income and rent amounts.

Your goals with the property

It is likely that you have bought a commercial space to rent it out, and you must have bought several buyers competing against each other, but at the time of investing in a property, you would have plans for the future.

If you are looking to generate a fixed-income source, you will certainly rent it out. You will immediately start looking for a buyer to rent out your space. There are some people who use the property as a fixed-income source for a short period of time, and they sell it out as the property prices hike to make profits.

This scenario is very common among property developers. You should know how you want to use the property because it largely depends on this factor that what kind of property you will invest in.

For instance, if you are buying a property at an auction, you may or may not be able to use it to rent out. You will have to pay the whole money within 28 days of the auction, so you must have this much money, and this outright payment should not affect your budget. You will more likely sell the property.

Before participating in the auction, ensure that the location is comfortable for you. No buyers will buy from you if you have got it in a space that is not located in a convenient location. You should know how you want to use the property before investing. If you are looking to buy an auctioned property, you should consult an auction finance broker.  They will help you introduce you to a lender that matches your requirements.

Another plan

It is likely that your purpose of buying a property is not fulfilled. For instance, if you buy a property to rent out, it is likely that you will fail to get a potential prospect. You will have to consider a plan B to recover your money loss. If you have financed the property, taking the necessary step is vital.

Having a plan B is a must. You might consider selling it, but if you are unable to rent it out, let alone sell it. You should see what is holding you back from achieving your goals. Check out if you can remodel it. The expansion will help attract a large number of buyers. Try to look for new revenue streams.

It is always suggested that you analyse the property’s full potential. However, sometimes you have no other way than to bear huge losses. Investing in a property is very risky. You will have to bear the losses if it does not meet your purpose.

Experience of a commercial property manager

It is not easy to manage all commercial properties simultaneously. You will need a commercial property manager. Make sure you choose the one that has years of experience. They will help you find the commercial property that meets your goals.

Do proper research before choosing a property manager. Visit the review websites to see what other people have to say about them.

The bottom line

Before you buy commercial properties, there are a lot of things you will need to take into account to ensure you do not lose your hard-earned money. Commercial investments involve too much risk. Make sure you will not suffer financially even if it turns out to be a doomed property.

Similar Posts