For a long time commercial real estate investing was considered the playground of wealthy business magnates with surplus funds. However, things have changed and now several high-net-worth individuals are interested in taking the commercial route. It offers a variety of investment options ranging from retail shops, childcare centres and cafes to office spaces and industrial warehouses. Although considered risky in comparison to putting money into residential property, it brings back rewarding returns and incurs limited expenses.
Thus if you are planning to expand your property portfolio by acquiring commercial property for sale in Australia, then you should be well-aware of the investment basics. The process involves a systematic approach that entails detailed market research, knowledge of latest rental trends, and tracking of economic conditions. Finding the best opportunity ensures capital growth and exceptional future income. So here is how you can become a pro in commercial real estate investing.
What To Look For When Buying A Commercial Property?
When you are starting out, you need to consider a few significant factors to find a suitable property. Here are the critical aspects that should not be missed by a first-time buyer.
It is the most vital feature when you are looking for any property. The building should be centrally located and must be easily accessible via public transport. If you are looking for retail spaces, then high exposure frontage will fetch you great returns from tenants. Also, it should have ample parking space whether it is an office building or a retail precinct.
Office spaces should have restaurants, cafes and entertainment spaces nearby which help in attracting an impressive workforce. Similarly, a shopping precinct must have the required infrastructure that will improve foot-traffic in the area. The local council development plans can help in shedding light on the future of the vicinity.
The vacancy rate in the area should be low so that you will not have to run around looking for a tenant. Also, it will mean that once the lease expires, you will not have to wait for long before the next tenant settles in the property. On the other hand, if it is hard to find tenants in the region, then you should let it go. Although COVID-19 has affected vacancy rates at present, undersupply will increase the demand in the future. Thus it is the right time to invest in commercial property.
It is better to purchase a property with an existing tenant so that you do not have to get into the hassle of finding one. However, you must check about the lease experience from the outgoing property owner. Get information about the rental payments made so far and the lease agreement. Besides these basic details, you must also look into the viability and stability of the commercial tenant to ensure that he will be able to sustain the tenancy over the lease period.
As a buyer, you must pay attention to the build quality and determine whether it will be able to fulfil the changing demands of corporate tenants and retail businesses or not. It must have all the modern amenities and should be in good condition with minimal wear and tear.
How To Initiate A Purchase Deal?
Commercial property can be bought by submitting an expression of interest, participating in an auction or becoming a part of a private sale. The listings for commercial properties for sale are available online and can be easily accessed by users. Expression of interest is the common method of selling followed by most sellers. They sift through the confidential bids made by the applicants and then shortlist qualified buyers to start with the negotiation process.
If the seller and buyer are in agreement and have decided to go ahead with the purchase, then the contract is signed to seal the deal. For auctions, the buyers have to attend the open setting where bids are made publically. The highest bidder gets to sign the contract with the seller instantly. On the other hand, if it is a private sale, then the price is set by the seller and the real estate agent negotiates with interested buyers to close the deal.
How To Get Funding For Commercial Property Investment?
Lending terms are a bit different for commercial properties. You can only get 70% of property value as loan and the rest of the 30% has to be contributed. Prospective buyers applying for commercial property loan do not get access to lender’s mortgage insurance. Thus they must have enough deposit to become eligible for getting the loan. The terms and conditions of a commercial property loan are often complex and challenging to understand. Therefore you must hire a mortgage broker to negotiate the terms and a lawyer and an accountant to understand the legal and financial clauses.
Commercial loans are highly affected by the risk factors. Thus if the lender identifies you as a risky applicant for loan, then the interest rate will be higher. The loan terms are shorter for commercial properties and usually range between two to fifteen years. The applicant also needs to get an approval of a few things to get the loan.
These include information about the existing lease and its term. You will have to provide proof about your ability to pay loan instalments if there is no tenant. Plus, you will have to give details about your income and the income generated through the rent. You will also have to provide all the information about the property, including its location, type, valuation, etc.
Which Factors Can Affect Commercial Property?
The demand for commercial property is dependent on a variety of factors that influence its pricing. Here are some of the potential contributors for price fluctuations.
An economic slowdown brings down the commercial property prices as the investors become sceptical of capital gains. Currently, the government has reduced the interest rate to ensure there is no slump in the commercial property segment due to the COVID-19 pandemic.
Demographics of the Surrounding Population
If the region has a high population of skilled workers, then office properties will be in high demand in the area. On the other hand, if the location is inhabited by young couples, then it will witness a growth of childcare centres and family entertainment zones in the coming years. So make sure you invest accordingly.
Before investing, you must be aware of the supply of commercial property in the region. If there are better projects in the pipeline, then the tenants may move to the new developments in the future. So keep a track of the supply.
Commercial property for sale in Australia has always been popular among investors because of stable economic conditions. The current low interest rates ensure that the segment will remain lucrative for buyers in the future as well. So make sure you keep the tips mentioned above in mind to get started with your investment.