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Commercial property: To build or buy, that is the question

By Greg Bell

Filled with the right tenants in the right area, any commercial property venture is going to be a profitable one for investors. While the money is a definitely a pro, buying this type of property is complicated and needs a fair amount of consideration and planning before purchasing. 

One such question investors need to think about before signing on the dotted line asks how much control they want over the building itself. Do you build, or do you buy? There are benefits to both – let's break it down. 

Benefits of buying

Buying established commercial property means that many of the hard decisions have been made for you. So, before snapping up a piece of commercial property you have to consider the type of tenants you want to have in it. This way you can better assess the floor plans and office spaces to see if they suit the needs of these potential tenants.

For example, if you wanted to fill the building with medical professionals, you wouldn't want to invest in a space that has an open floor plan. It would be easier for a doctor's or dentist's practice to have multiple rooms where they can see patients privately. This will make a big difference when it comes time to find renters. 

Established buildings are the fastest, and least hassle way to start making profit right out of the gate. 

Benefits of building 

Building your own commercial property from the ground up and you get the say in the development and design of the space. You gave the unique ability to create a space that is unique to the market and therefore more enticing for potential tenants who you have targeted. 

One of the major benefits of buying vacant land and building up from ground zero isn't just the say you get in the overall design – it's also about the tax breaks. Buying land that will be for commercial use means that you are entitled to capital gains tax. Of course, property owners need to have clear records of building costs and dates so you can later work out the capital gains. Additionally, there are certain tax deductions that are associated with owning commercial buildings which also require the owner to keep a detailed record of costs. 

Depending on the premises of the property, you may even be eligible for the GST. According to the ATO, some of these factors include:

  • If the seller used a margin scheme to include the GST in the price. 
  • If you purchase property from a seller who is not registered for GST.
  • If you purchase property as a GST-free supply.
  • If you are not registered for GST.

Potential risks of investing in commercial property

Of course, every business venture has its risks, and making an informed decision on whether you should build or buy commercial property involves acknowledging those risks. One of the biggest risks involves the property market itself. Investing in the wrong area risks the property itself decreasing in value and not being able to fill the space. Either outcome is not ideal and could result in loss of money. Working with a professional real estate agent will help you avoid this risk. 

Another major risk is in the tenants themselves – if they stop paying their rent, your bills will be in jeopardy as well. Finding tenants with a reputable history of payment history is the best way to prevent this problem from occurring. 

Narrowing down the right move for you depends on factors ranging from budget to personal aesthetic preferences. If you need help which this decision making process, contact our team here at Ray White Surfers Paradise – we can guide you from beginning to end. 

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