10 Important points to consider before buying a commercial property

10 Important points to consider before buying a commercial property

Decision of buying a commercial property is like entering into a new venture. One does the research & market study but never knows what the future it has. All the parties involved, buyers, sellers, agents, etc. are prone to or exposed to the risk of demand & price movements. At the same time,
when the prices go up, all the parties reap the benefits that could be substantial.

Buying a commercial property, especially to run your own business is a far cost effective decision that on taking a property on lease and paying heavy rentals. However, there is no one-size-fits-all kind of strategy to buy commercial real estate. Also, buying a commercial real estate is much more riskier than buying a residential property. It requires a complete analysis & comparison of all the available options & study of expected returns on investment.  These investments must be made after complete in-depth & detailed study of returns against expectations.

Before deciding to buy a commercial real estate, it is critical to evaluate various risks involved. One must not end up in a situation when in few years renting or leasing the same property reaps a better result. Each risk must be studied carefully along with mitigates available, and none should be ignored thinking it’s insignificant or might never affect your business. Following few important factors must be considered before purchasing a commercial real estate.

• Location: A lucrative location today might turn to be an unwanted destination tomorrow. You cannot predict the future but can decide the basis the past trends of businesses in the area under consideration.  At the same time, it is very important to consider distance from end user & suppliers. The business must be accessible to the end user to be successful. Also, connectivity via road, rail or water transport is required to run the business successfully.
   
• Budget: Any activity, which needs investment, needs a budget planning before execution. Similar is true for a commercial property purchase transaction. It is critical for the investor to lay down the budget allocation towards the property cost amongst all other business related transactions. This will also help in easy selection of the commercial property amongst the available options.  However, in the absence of the entire amount of investment one may pay just a small down payment and take a mortgage for the remaining amount.
   
• Physical condition of the property: How and for what purpose was the property used before your purchase is important to know. This will give an idea of wear and tear this property must have gone through and what kind of repairs it might need in the future. This would also help understand the resale value or rent that could be earned in the future.
   
• Property and its allowable purposes: Every kind of business would put the property to a different purpose. For example, a CA firm would need an office space whereas a factory owner or a manufacturer would put property to industrial uses. Thus, it becomes critical to know the lawful use that the property can be put to before finalizing.
   
• Limitations to modify: Basis the applicable laws properties have, there are restrictions on modifying the exteriors of interiors of the property.  Study the laws in details & also be clear of your requirements. At the same time, each property will have some maintenance costs.
   
• Availability of support services: Other services like parking, lift, security, etc. must also be carefully studied while finalizing the commercial real estate. These services if available, not only help in running the business successfully but also contributes to the resale value or determine a better rental in the future.
   
• Opportunity to expand or lease out in the future: A commercial property should be such that in case of expansion it fits the requirement or in case of a business slowdown or closure it has sufficient takers for leasing.
   
• Infrastructure and neighborhood: Infrastructure development in the area does affect the property value both positively & negatively.  Developments like railway line construction, etc. might affect the value of your property value. Also, clearly study the availability of basis utilities like electricity, water, drainage etc.
   
• Litigation on property: The commercial property should be free of any old or existing litigation. In the case, any such litigation is found on the property the buyer gets a chance to re-negotiate or may also decide to leave the deal immediately.
   
• Hidden Costs: Many properties have certain hidden costs. These costs are associated with running and maintenance of the property. These potential costs must be estimated in advance and discussed in the contract itself.
   

To avoid all potential risks and sail through smoothly, one must exercise extensive due diligence before concluding the deal. It might be required to frequently visit the property & nearby locations to identify issues in advance & fix them timely, thus making them ineffective once the business operations start.

The market for Commercial property sale is run by agents these days. They have an expertise in this filed & can make you chose the right property with a better price in exchange for a reasonable amount or commission. 

Author Info Manish Khanna

Manish is founder of Business2sell Group of Websites. 

Business2Sell.com.au is one of the leading business and franchise for sale listing websites. We work with our business brokers, commercial agents, franchisors and private sellers to help them connect with the right buyers for their opportunities. 

With website now functional in Australia, United States, United Kingdom, Canada, New Zealand and South Africa. We have over 18,000 businesses for sale listed, with over 220 Business Broker and Commercial Agent. 

I have over 20 years of experience in Web Industry; I have been involved in websites industry since the early years of 1996-97. In my professional career I may have worked for over 10,000+ websites. My Specialty is to build portals or complex online applications.