What To Consider When Buying A Commercial Property

What To Consider When Buying A Commercial Property
You may be considering a commercial property as an investment opportunity. Whether you’re looking to make an outright purchase or opt for shares in a commercial property company, it is best to start with a strong understanding of what it means to own a commercial property before you make the leap.  It can be quite different to purchasing and owning residential property, so seeking professional advice and assistance can make a world of difference to your investment decisions.  Here are four of the key considerations you’ll need to take into account when purchasing commercial property. 

Due diligence

Due diligence when it comes to a commercial property covers the value of the property, your legal and regulatory requirements, body corporate issues (if applicable), and operational questions.  These considerations will take time, as you’ll need to get a full understanding of everything that could impact your purchase and ownership. Value concerns include, but are not limited to: 
  • The location of the property and its accessibility¬†
  • Its proximity to other attractions, amenities, and public transport¬†
  • Whether the property could be leased¬†
  • Whether it would be easy or challenging to resell if required
  • The condition of the building¬†
  • Why the vendor is selling¬†
  • Current tenants, leases and agreements in place¬†
  • Existing chattels¬†
  • Operating expenses¬†
  • Comparable sales data¬†
Legal and regulatory requirements involve finding out about any title or survey plan issues, any outstanding notices from the council, any resource consent or zoning rules, and any history of asbestos.  A building report and the Land Information Memorandum (LIM) report will cover many of the basics of your due diligence. 

Finance

Banks typically allow low-deposit loans on residential purchases, but require much higher deposits on commercial investments.  Typically, banks require anywhere from 30% to 50% as a deposit for commercial properties. This can make it harder to get started with commercial property ownership, but helps to keep the risk to a minimum for lenders.  You will need to speak to your bank about getting pre-approval before making any offers, and ensure you have enough for a higher deposit. It also pays to consider current interest rates and do stress testing on your income to get an idea of how you might fare if interest rates rise in the future. 

Insurance 

Insurance is also a special consideration for commercial property.  You will need to talk to a specialist insurance broker to find out if the building is insurable, which kind/s of insurance it needs, and how much you will need to factor into your costs to cover it. 

Tax obligations

Tax obligations for commercial properties will require the assistance of an experienced accountant.  For example, you will need to figure out if you will be required to pay GST on the property. This depends on whether the vendor and purchaser are GST registered or not, whether it becomes your main residence, and other factors. 

Seek professional legal advice when purchasing commercial property 

Whether it‚Äôs your first commercial property purchase or your tenth, professional legal advice can help to give you the information you need to go through with the process.¬† At Hayman Lawyers we specialise in the buying and selling of property, with experience in the Wellington region over the past 20 years. We have significant experience in leases, easements, licences, and agreements for sale and purchase for commercial properties. Contact us today for support and advice in purchasing your commercial property.¬†¬†  
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