How do you choose the Right Property?

WHETHER YOU’RE an investor or owner occupier, there are certain things to consider – just to ensure you’re making the right choice, whenever purchasing a commercial property.

In an earlier article, I gave you access to a rather neat little App – which will quickly help you in shortlisting your potential properties.

Therefore, if you haven’t grabbed it as yet, simply click on the image to download it from iTunes onto your phone or iPad.

And you’ll find several short walk-through videos, which will explain the process of aligning your Investment Objectives with the appropriate Buying Criteria.

Anyway, I’ll leave you to follow through on that by yourself. However, once you have a possible shortlist … you then need to delve a little deeper.

As an Owner-occupier

If you are going to occupy the property yourself, perhaps you should make it a 2-step process – by initially renting a property in the neighbourhood or location you prefer. Finding somewhere to lease is relatively easy, because not everyone wants to sell their commercial property.

Most people who own commercial properties do so for investment. That means you are able to lease (or occupy) their space, for as long as you keep paying them rent. Plus, you are then able to discover if that neighbourhood works for your business.

The last thing you want to do is be outlaying a large amount of money … only to find that you have located your business in the wrong spot. Anyway, here are a few more pointers in choosing a good commercial property.

Seeking Finance

You need to remember that commercial property loans are structured differently from home loans.

Therefore, you need to understand the rules for commercial property before you start buying. That is why engaging a good finance broker is probably the best step you can take.

When seeking finance for a commercial purchase, you need to do your homework – by making sure you have all the necessary documents up to date, and accurate.

That way, you can respond to a lender’s questions without hesitation.

Also, you will require enough equity, to ensure you have money in hand to cover things like the closing costs.

This is important … because a lot of people overlook things like stamp duty, legal fees and any other acquisition costs involved – including the valuation.

You’ll find banks are more willing to lend money to investors, who have a good starting equity.

Your Buying Radius

When looking for a commercial property, you should limit your search to about 30 minutes from where you live (if you plan to manage it yourself).

Otherwise, purchase within 30 minutes of your managing agent’s office.

So, if you’re buying interstate (or in another part of the city where you live) … just make sure your managing agent can quickly reach your investment property.

This allows you or your management agent to keep tabs on the property and local events, which may well affect its ongoing value.

Focus Your Attention at First

Rather than buy a number of separate strata offices (or small warehouse) units with a wide geographic spread … you could buy 2 or 3 in a row – all with separate titles, for flexibility. However, you will generally find you can negotiate a “discount” on price, and achieve a lower management fee – because they are grouped together.

Ideally, if you ARE going to purchase something bigger … it’s best to buy on one title; and then create a series separate titles, to generate “super growth” for your property going forward.

Just to recap so far … when you are an owner-occupier, it is good to lease first and make sure that is where you want to be. And it also means you do not have to deal with any of the loan issues upfront.

Then, with an initial 3-year lease, you can establish if it is the area you want – something you’ll probably discover within the first 12 months.

You can spend the remaining two years identifying a property nearby, which you think would ideally suit your business.

Pooling Your Equity

Early on as an investor, you may initially have only limited equity.

However, it’s not until you’re in a position to buy commercial property over $1.5 million, that you start to enjoy any pricing advantages – simply because it’s a crowded market within the lower price brackets.

Furthermore, you will have little scope to subdivide the property to create and enjoy any “super growth”.

Therefore, with my Mentor group, I help members set up small Private Syndicates. And that means they are then able to purchase properties in the $5 million to $8 million price range – where there’s far less competition.

And as you can appreciate, this also means you can benefit from a better calibre of the tenant as well.

Anyway, if you would like to discover more about Private Syndicates … simple click on the eBook image on the right.

That way, you can download a quick explanation about how it all works – which also covers a number of built-in safety features for the members involved.

Due Diligence

As far as due diligence is concerned you will need to have qualified building consultant to inspect and report on all of the structural and technical aspects of the property.

This will give you comfort in knowing you have a solid property before the contract becomes unconditional. Plus, it also helps to minimise any unexpected expenses (or replacement costs) down the track.

As far as legal and accounting issues, there can be a little more involved.

For individual purchasers, you should always have the contract checked by a lawyer (plus an accountant for syndicates) … before parting with the initial deposit, as far as the purchase of the property is concerned.

BOTTOM LINE: By following through with these basic steps, you can set about building up a trouble-free portfolio.

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