Buying a property under the hammer is one of the most effective ways to secure a fair price through a mostly transparent purchasing process. But don't assume that your past successes at residential real estate auctions will translate directly to the commercial space. This space involves far more quirks and special considerations with each property.
It will be essential to thoroughly consider your unique investment needs and plans — plus the variables of each property. As you go through your due diligence, do spend time thoroughly researching and coming to understand the financial and tax picture with each investment you seriously vet.
Commercial real estate is not a one-size-fits-all space, chiefly because there are so many different kinds of asset classes. From restaurants to office spaces or stores, storage facilities to petrol stations, each type of commercial property has different applicable concerns.
Understanding the asset class you're buying at auction is essential, particularly when it comes to financing. Banks and other lenders assign loan-to-asset ratios differently for each class of commercial real estate. This will impact what percent of the total asset value they are willing to loan you — a hugely key bit of data to take with you to auction.
Also aim to understand the length of time the bank is willing to give you to pay back your loan. Many institutions are now issuing longer loan terms, seeing as they work so well for residential real estate.
Part of your planning should involve considering the various tax implications of your commercial real estate purchase — well ahead of making said purchase. It will be important to thoroughly consider, for example, the Goods and Service Tax obligations you'll take on. After all, GST is paid to the government and won't be covered by your loan — so it's a number you want to understand backward and forward.
One key consideration will be whether your commercial property is being purchased with a tenant in place as opposed to being sold vacant. Properties with a tenant in place carry a different tax obligation than those that are unoccupied. Knowing this and other differences is important so that you don't wind up with unplanned tax bills.
Do get information about GST in writing when considering and upon completing a sale.
Beware dummy bidders
A hallmark of residential real estate auctions is the rule that all bidders must be registered. Dummy bids are illegal. This isn't the case at commercial real estate auctions, so beware dummy bidders who are only making bids in order to raise the price.
Taking an advisor who has extensive experience at commercial auctions will help you avoid bidding against yourself.
Particularly if you're not experienced in the world of commercial real estate, it's wise to have an experienced real estate professional by your side who can help you find the right property — and successfully navigate the auction process to obtain it. Get in touch with the experts at Ray White Surfers Paradise today, so we can help you understand everything the right agent can do for you.