By Eric Reyes
There has been a constant rise in commercial property purchases, as many investors have ventured into many business portfolios. For many entrepreneurs, purchasing a residential property tends to be an easy task, as most of them know what it entails. Nevertheless, the commercial property industry tends to be more challenging than the residential property industry, forcing investors to run away from buying commercial property.
Before purchasing a commercial property, an investor has to do some homework before signing the dotted line. Below are things an investor should consider before investing in a commercial property project.
Before investing in any commercial property project, an investor should always ensure that it is strategically placed. An investor should also consider the various variables that affect the location, affecting the property’s value level either negatively or positively. The crucial variables to consider include:
- Accessibility of the location
- Location of the suburb
- Population and zoning numbers
- Businesses surrounding the property
- The level of competition
It is vital to know the local council zoning laws and regulations and understand the type of businesses permeated. In addition, it is also important to corporate with the local government and sees the future development plans that may affect your commercial property.
When purchasing a commercial property, always research the project’s historical performance and other similar projects before buying one. This includes researching on its yield and capital growth performance. Having a historical background of the asset gives you a clear picture of the asset’s strengths, weaknesses, and asset type. It will also help you understand the current and future trends, rent rolls, tenant profile, and any other information that may help you develop a budget. You can also opt to look at the various building inspections in Melbourne companies to get a brief history of the area.
Every suburb or city has a unique infrastructure that supports the growth of commercial properties. Government plans play a vital role in determining how infrastructure will grow in a specific location. Infrastructures such as roads, rails, airports, and hospitals always positively affect an area’s value. If you are a resident of Melbourne, many websites offer future infrastructure projects that investors can take advantage of.
An area equipped with adequate infrastructure can escalate the demand for commercial property. For example, establishing a modern bypass would escalate the need for a warehouse property in the area. The reason being, most transport companies, would prefer occupying the warehouse as there is access to affordable lands and good roads.
Investing in a commercial property tends to be complex compared to funding a residential investment. This complexity makes this a delicate task to undertake, forcing an investor to seek a financial expert’s services. The financial expert must ensure that the procedure is effective to help the investor acquire the funds and on time.
Before an investor delves into seeking financial assistance, it is advisable to ask for a credit report review. The reason being a poor credit score or delayed payment may tamper with the finance approval. There are many factors that will determine whether a commercial property loan will be approved or not. They include a credit check, coverage ratio, down payment, and property appraisal.
The lease term plays a significant role in determining the kind of commercial asset an investor will venture in. A good investor must always ensure that the lease term is long enough to recover the investment fund and generate requisite profit. If the lease term expires, a landlord may decide not to renew the contract. In this case, your business may lose its appearance that is already installed on the property.
A wise investor should always leave room for a renewal option so that he can secure the premises even when the lease contract ends. The things to consider when taking a lease term include:
- CPI index which affects the rental rate
- Lease terms can go for 10, 5, or 3 years with an option to renew
- Special council approvals such as chemical treatment centers, medical facilities, and childcare centers
- When tenants install partitions on the property
When purchasing a commercial property, you should not rush fearing that you will lose out on a great offer. A good investor will always take time and do thorough research, considering the above factors to ensure that they come up with good results.
About the Author
Eric Reyes is a passionate thought leader having been featured in 50 distinguished online and offline platforms. His passion and knowledge in Finance and Business made him a sought after contributor providing valuable insights to his readers. You can find him reading a book and discussing current events in his spare time.