Are you thinking about purchasing a commercial premise either for yourself or as an investment?
Buying commercial property can be an option for people who wish to run a small or medium sized business. It could be a type of property investment such as a buy to let. You must understand however when buying commercial property, it is very different from buying residential.
Commercial property market is very different as normally landlord and investor lead. Commercial properties normally have long leases between 10 and 20 years. This is commonplace.
However, the commercial sector is not without risks. Commercial property typically can provide a higher yield than residential in some areas. It is very important that you do your research.
Choose the location carefully.
It is so important that you do research regarding the commercial premises. You should do as much research as you would be if you were buying your own home. Will you be holding regular meetings with clients at the premises? Will you be employing several staff? Needing a larger premise later if you are expanding? It is so important to know whether you need a town centre location or an out-of-town location. Will you be dealing with clients remotely in future? Will you need to have parking in future?
Buying a commercial property is not like purchasing a residential where you can move on in one- or two-years’ time. There are often very long-term purchases, and you must consider everything you will needs might require in future. If it is an investment, then you need to look at whether the property will give you some form of right to return in future.
Determine your investment budget and return goals.
If you are looking to purchase a property for an investment, then you need to do a huge amount of research. You need to understand the current state of the commercial market. If you want to make an informed commercial property investment decision it is vital that you learn the current market. You need to check the latest trends that there are. You should do some research and consult experts. If you are a first-time commercial buyer, you could be in over your head. This is really the reality of the situation. The best thing to do is put the necessary time and research in to understand all the moving parts with commercial investing.
Do not be afraid to contact local experts and professionals who have years of experience investing in commercial properties. They should be able to put you on the right track. Commercial property investment can be a broad range from small shops top large corporate head quarters and everything in between. When sitting down to plan your first investments it is important that you have the exact amount you can afford to invest and if the worst-case scenario arises, lose. Once you have decided it is time to make preliminary plans. You should look at what type of property you wish to purchase and whether your rate of return can be expected. Every local market has a unique set of values so check the current value of the premises in the area, tax rates, interest rates, availability of commercial mortgage and rental value.
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Consider the flexibility of the property.
It may be that you wish to purchase a property for your business. Always remember that commercial properties are more sensitive to the economy than normal properties. Is the property fit for purpose now but may not be in 10-12 years’ time? Are you thinking of purchasing it for your own use? Will you need to expand? Is the industry changing?
You might want to consider the following.
- Home base workers are on the rise which explains the demand in co-working spaces. So, offices may consider that this is a new venture to dive into.
- Due to the rise and demand for online shopping, high streets are now being transferred in to retail warehouses.
- Is there a higher demand for industrial spaces in your area?
You will also need to think about whether the property you are considering can expand. Is this something you might want to do in future.
Explore your options and weigh the yields vs the risks.
There is no such thing as a risk-free investment. We have already stated above that you should look for local experts. Nothing is in absolute security when it comes to commercial property and return. You should consider your tolerance with the present and forth coming risks.
Are you in a position where you could lose the money if the worst came to the worst?
How much deposit will I require?
You may find that you may need a much higher deposit when it comes to commercial properties than residential. Lenders normally like to ask for a minimum of 20% or more. You need to make sure that you factor this into your calculations. Lenders may also ask to see some form of business plans. Make sure that you know what they require before you even enter the market.
Get a full structural survey.
Make sure that you have a full professional survey carried out before proceeding with any purchase. This could be critical for you. Surprise repairs are major headaches that can cause you stressful months. It pays to make sure that you know exactly what you are purchasing and what the costs will be. A survey is always a very wise precaution.
Can you sublet the property?
Are you purchasing a property or thinking of renting one out? If you are thinking of renting, will you be able to sublet any part of the premises. This will be contained in the lease and you should get a professional to check it for you. You may find that you may wish to sublet your own premises. Can this be done? You should always retain some form of commercial flexibility. You would need to make sure that your lender permits some form of letting for your premises. Make sure you also check whether there are any planning issues in this regard.
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Learn the language of commercial property.
Commercial property is not the same as residential and there may be restricted covenants on the land. Do you even know what that means? A restrictive covenant basically means what you can and cannot do on a piece of land. Have you checked the local planning authority whether your type of use for the property would be permitted? Like any specialised market, commercial property purchasing carries its fair share of jargon. A lot of these will be something like 7-day notice, best and final, BMV (below market value), broker, deposit, freehold, leasehold and a lot more. Make sure you know exactly what you are talking about in advance.
Think of the possible return of investment and potentials for the commercial property.
You have decided to buy a commercial property for the return of income. This relates to the amount of profit earned by the business. It is not a simple rule. Many people do not consider only the interest they may need to pay on a mortgage but also what the yearly costs will be of the property. Are there any repairs to be carried out? What is the situation with my tax? It pays to maximize the potential of your property which you are looking to purchase. Check what the property could be rented for, is the market going up or down?
What is the stamp duty land tax?
This changes on a regular basis when it comes to commercial property. There have been much lower rates for stamp duty, but each government has a change of mind. You should always check with your solicitor what the cost would be. Especially, the initial cost of purchasing a property. You need to take this into account when you are looking for investments.