ARTICLES

Buying a Commercial Property

Whether buying a commercial property to be used as premises for your business or for an income stream, there are many important issues to consider.  Reasons for Buying a Commercial Property The following are most of the main reasons for buying a commercial property: 1. You are no longer at the mercy of end of lease market rental reviews, that in your opinion are always way above market rental levels. 2. You have security of tenure. No need to fret over whether the landlord will renew your lease or re- develop the property.  3. You can fitout the property to suit your taste and requirements. 4. As a hedge against inflation. In the long-term, the annual capital growth of your commercial property will either match or outstrip inflation. 5. If you rent the premises you can benefit from a rental income stream. 6. If you use the property for your business, you remove the risk of an unknown tenant with its associated potential headaches such as late rents or poor maintainence of the property. 7. Wealth creation. If structured correctly, your SMSF could own the property while your business pays the rental that is a tax deductible business expense. 3 Critical Considerations Before Buying a Commercial Property Amongst the considerations before buying a commercial property are these three that could be the most critical: • A good location could turn bad.  A high demand location could become undesirable. The increasing supply of new commercial properties into the market could result in the decreasing demand for your commercial property. A highway diversion or bypass could decrease the accessibility of your property. • A burden on your finances. Coming up with a sizable deposit and servicing the loan for the commercial property could compromise your immediate and eventual cashflow. What if you have to simultaneously pay for emergency repairs and legal fees for a tenancy dispute? Furthermore, unlike residential property, a commercial property usually takes a longer time to sell. • Tenancy headaches. If buying a commercial property to be leased, consider that tenants sometimes miss paying or need to be chased for their rent. Bad tenants do not maintain your property the way you expect them to. Even worse, a bad tenant could damage your property requiring costly repairs that could take a long time and good money to recover.  Seek Professional Advice Before Buying a Commercial Property Some of the experts you may consider contacting: • Accountant. Not just any acountant but one who has experience in property-related matters. A good accountant can advise you on the tax implications of buying a commercial property as well as assist you to set up the best structure for buying the property. • Solicitor. A solicitor can help you in all the legal aspects of the transaction.. • Commercial real estate agent. A commercial real estate agent can show you potential properties with characteristics that are within your specifications. • Mortgage broker. A mortgage broker will help you sort through financing options and various types of bank loans based on your disclosed financial situation. • Commercial valuer. From a fair and impartial valuation of the property by a commercial valuer, you will be well armed in your negotiations with the vendor or selling agent. After the purchase, you wll have peace of mind knowing that the price you paid was based on a profesional valuer’s evaluation.