Real estate involves large sums of money and significant risk, though due diligence and thorough research can yield significant returns. It can be a wise investment for many small businesses and investors, as long as everything goes well.
Here are five things you should know when buying your first piece of commercial property.
Get Familiar with the Conveyancing Process
If you’re going to buy commercial property, it’s essential that you get yourself acquainted with the conveyancing process. First, the solicitor you decide to go with will go through the title investigation stage and pre-contract searches will be carried out. Any issue that arises from the Commercial Property Standard Enquiries and other searches will then be addressed by your solicitor.
If a mortgage is being taken out for the purchase, the mortgage offer will also be looked over to see if everything is in order. You may have to deal with VAT on commercial property purchases, but your solicitor will be able to advise you on the matter. In the case of leasehold purchases, landlord information and lease terms will be established.
Once everything is in place, your solicitor will proceed to draft the deed and it will be sent to the other party’s solicitor for approval.
Any issues arising from the pre-contract step will be handled by both solicitors. Once everything is settled, you will get a report letter and any appropriate documentation that needs to be signed. This may include things such as the contract, the mortgage deed and a stamp duty form among other things.
Once this is done and your deposit has been cleared, a meeting can be arranged for the completion and exchange of contracts. The property will then become legally yours.
You solicitor will then give you a financial statement that will allow you to transfer the remaining funds for the purchase and stamp duty will also have to be paid at this point. The purchase may have to be registered as well.
The conveyancing process can be very complex, and this is why it’s essential that you seek legal advice from reputed commercial property solicitors like Harper James Solicitors. A good solicitor will be able facilitate the whole process and look after your best interest.
The Importance of Return on Investment
Whether you’re investing in commercial, residential or industrial real estate, you must factor in the return on the investment. There are costs like building maintenance, and income could be reduced by vacancies. Commercial leases can run from ten to fifteen years. What will you do if a tenant moves out or goes bankrupt, or if the space takes months to fill?
Consider the return on the investment relative to the cost. You may spend a little more on a certain office space than an industrial space but receive far more rental income from the former.
The Overall and Local Property Market
In order to make an informed decision, you need to understand the local property market and the general property market. Understand the trends for the area, whether property valuations and rents are going up or down.
Consider how shifts in consumer preferences and development are affecting property. For example, expanding public transit could raise the value of properties around the transit stops. Or you may recognise opportunities, such as a dearth of quality office space in an area that could be rented out for a premium.
The Bigger Picture
Don’t fall in love with a piece of property and don’t buy property simply because it looks like a great deal. Do your research and run the numbers. How does the property compare to similar properties? If you will be moving your business into the property, does it meet your business’s long-term needs? Only buy it if you’d be able to operate out of it for ten years or more. Flexible properties may be worth paying more for, since the ability to reconfigure the property or expand saves you from the need to move.
If you’re just starting up and don’t know what you’ll need in ten years, it is probably better to rent for the short-term.
Your Budget
The budget for the purchase is not just the cost of the building itself. Consider other expenses like refurbishing the property or buying furniture. Factor in ongoing costs and long-term upkeep. Understand how interest rate changes could affect the mortgage payment and the tax implications of switching from a lease to a mortgage. Don’t forget to save up for the deposit or factor that into your financing.
If you take the time to do your research, buying commercial property could be a great way to invest in the future success of your small business. And buying commercial property is an excellent investment opportunity when done right.
