Six questions to ask an agent before buying commercial property

CommercialFriday 8 July 2016

There’s plenty to consider when making a commercial property investment, especially if you’re a beginner.

You need to identify the right kind of commercial investment property for you, and establish just how productive your investment is likely to be.

It’s important to choose specialist property consultants with years of experience in, and knowledge of the local commercial sector.

We’ve drawn up a list of important questions to ask your agent in the hunt for the perfect commercial investment property.

1. What type of property is right for me?

There are many different kinds of commercial property. You need to ask yourself whether you want short-term or longer-term gains, and whether you’re looking for great tax depreciation, high monthly and annual returns or an easy-to-manage investment.

If you’re lucky, you can find all these points rolled into one. Generally, however, it’s rare to find everything packed into one commercial property.

2. What is my price range?

Identify exactly how much money you have available for the purchase, allowing for inevitable extras – stamp duty, conveyancing costs, agent fees and insurance for starters.

Once you know your price range, explore the kind of property available to best fit your budget.

3. Why is the vendor selling?

It’s important to know why a commercial property is on the market. Did the owner run into financial trouble? Is the company after a quick sale? Are they just testing the waters to gauge the level of interest?

Where there’s a level of urgency for the vendor to sell and move on, you are more likely to score a good deal and win the property for a competitive price.

A pre-sale check is also vital for any commercial purchase, to make sure the vendor is not trying to cover up structural defects. When investing in a property worth tens of thousands of dollars, the outlay of a few hundred is well worth it.

4. Are there other things I don’t know?

Do your homework on the asset. Check out its previous performance over a number of years, and compare it with competitors in the area. Be sure you are buying a strong business with sound history and promising future.

What is its capital growth? What are the company yields? As far as possible, try and ensure your own findings match up with the advertised performance levels. Any discrepancy is an opportunity to get a better deal.

5. How much will I have to spend?

Investigate the current state of the commercial property, how well it has been maintained and whether money has recently been spent on renovation, repair and fit-out.

If the premises are shabby and in a state of disrepair, calculate how much you will have to outlay to bring them up to scratch – and factor it into your offer.

6. What is the state of the lease?

Find out how long the current tenants will be there. If lease renewal is pending, you have the uncertainty of finding new tenants. On the other hand, it’s a chance to increase the rent, where feasible.

Find out if the existing tenants have a sound payment history. And consider the viability of the business if current high-profile tenants move out, taking their customers with them.

Commercial real estate investment can be hugely rewarding if you make the right choice, so take the time to get it right.