Tips for Purchasing a Commercial or Retail Property Investment

When you want to purchase a commercial or retail property, there are things to investigate before you make an offer. First, get to know the property and the region comprehensively before making an offer.

The improvements of a property would include the layout, design, use factors, and code compliances. Consider these questions.

• Will the property serve the occupants and be suitable for long-term investment? 
• How long would you like to hold the investment property, and will any significant expenses arise during that time? 

So, the rules are simple here. You are purchasing a property with an income stream, so consider how that property will function for the current and immediate future.

Regional Research

The regional assessment would help you understand the supply and demand factors that impact any investment property and location. New regional developments may impact nearby future rents and local businesses. 

Developers like to fill their properties fast and will provide plenty of incentives to encourage local businesses to move to their properties. Don’t lose your tenants to the activities of nearby property developers.

You don’t want to purchase an investment property where most tenants would soon be moving. As part of that review, check out the rental history and risk of future arrears.

Finding the right property to purchase is the first factor of consideration. When found, the short-listed property can be investigated in many ways so you can feel more comfortable when making the offer. 

Knowing Property Facts

There are things to investigate as part of the property purchase. Here are some of the bigger ones that relate to the income stream and the physical property:

1. Rental income – There are different types of rent, so the total rental number is only the start of the assessment. Take the monthly rent, average it across the year, and then understand what rents will be net and gross. Outgoing deductions will impact gross rents.  Split the tenants into those that pay net and gross rent.
2. Outgoings or Expenditure – The property outgoings will be ongoing. Start an analysis by looking at the history of property expenditure over the last few years, then assess those numbers in the current financial year. You can break down the numbers into controllable and uncontrollable outgoings. The uncontrollable outgoings will be those in the rates and taxes category; they are always active and rarely fall. An astute owner or property manager can manage the other controllable outgoings, such as maintenance. You can also compare those outgoings to the industry averages for the property type. How will the property you are considering purchasing compare to the industry averages?
3. Vacancy factors and Arrears – If your property contains several tenants, some vacancies will likely happen throughout the year. Tenants leave, default, or change. Some tenancies lease quickly if the property is attractive to small business owners as tenants. If, on the other hand, the property is older or not well maintained, then filling vacancies can be an issue and take a reasonable degree of time.
4. Essential services and plant and equipment – The plant and equipment on the property should be checked for age, compliance, and functionality. For example, investment property has a limited lifespan with air-conditioning equipment and fire prevention devices. Replacement or upgrade can be costly. Have a building engineer look at the plant and equipment in the property so you know how much more functional ‘life’ exists.

So, these four factors are worth investigating when you purchase a commercial or retail property.  Seek to understand the property before you make the purchase.  A professional and experienced property agent will help you through your investigations so you can make an informed offer to purchase.

AUTHOR
John Highman
0417 221 108 | j.highman@rwsp.net
Ray White Commercial Gold Coast
Shopping Centre Sales and Leasing Specialist