Commercial Properties – What to Keep in Mind When Purchasing

What makes commercial property different from regular property that homeowners purchase? Well, a regular property is intended for residence. People buy it in order to have a place to stay. A commercial property on the other hand, is bought for the purpose of earning.

There are several benefits of investing commercial properties. This is a good source of income. You can also use it for your own business or have it rented. In addition to the income you will generate, you can use it to employ other people. Moreover, you can take advantage of the different tax advantage that the government has in store for you. Although it has many benefits, owning such property also has many responsibilities. You have to be certain that it is safe at all times. It is also essential that the property abide with the different rules and regulations of the local building agency.

After owning a home, owning a commercial property seems to be the best next step. However, there are several things you need to consider before finally purchasing one. How will you use the property? How will you finance it? And what type of property are you going to purchase?

How will you finance it?

You need to have a plan. In fact, a business plan is essential. You do not purchase a commercial property and decide what you will do with it later. If you have an existing plan, you can attract investors. You will also have a strategy on how to earn faster. This way, you will not be wasting precious time to earn the money you spent on purchasing the property. You can even use it to pay your monthly mortgage for the property.

How will you use the property?

It is important that you have decided how to use it before purchasing it. Will someone rent the property or are you going to use it for your business? If you will have it rented, you have to be objective with the property. Choose a property that the tenants will likely rent. You can personalize it and be more specific if you will use it for your own business.

What type of property are you going to purchase?

There are different types of commercial property to choose from. Consider the size and the location of the property as well as the style. This will affect its profitability in the future.
It is also vital that you find the most suitable property for its intended use. The following can help you find the right property:

1. Look for a competent agent. Working with an agent closely will help ensure that you find the best commercial property for your needs. Make sure that the agent you will hire is someone who is experienced with finding commercial properties.

2. Always look at the location of the property. It is important that it is accessible and that there are many potential customers. The location has to be conducive for doing business too.

3. Inspect the property before purchasing it. Will it be ready right after you purchase it, or will you need to do some repairs? You need to assess everything so that you can anticipate expenses, losses or earnings.

Commercial properties can provide us with additional income. In order to achieve that, it is important that considerations are made and plans are well laid out.

Understanding Commercial Property Investments

Do you ever feel that you should be looking more at investments in commercial property in the saturated residential property market? If this is in your mind, you are joining the new wave of investors who wants to diversify their investment portfolio with the unstable economy.

How big exactly is the commercial property market? Generally speaking, commercial property investment is not as straightforward as residential market. In Malaysia, it is almost sure that any piece of residential property will be lapped up the moment it is launched, and everyone at some point of their life will be looking for a house of their own. Some may buy a piece of residential property and rent it out instead. For commercial properties, there are a lot of other considerations.

1. Location

Location is a very important factor when it comes to investment in commercial properties. It may be true that a lot of people are looking into creating their own business, and it will not be too hard to find someone to rent your property start their business, but if the location is not right, the chances for renting out is slim.

When you wish to invest in a commercial property, look around to see whether there are other residential properties which will support the business. You may want to take a good look at the whole development project, and check residential population surrounding the commercial lot that you are aiming for.

Also, do check if the area is a flooding area, or are there any other disadvantages. Parking space is a very important factor of consideration for any business to thrive in this modern world, and you ought to make sure that there are parking spaces near the property you wish to invest in.

2. Features

Sometimes, the success of commercial properties also comes with the features included in the project itself. For example, some properties may be managed by the developer, with facilities such as wi-fi zone, making the commercial blocks into event venues or even being selective about the types of business and brand name to qualify as tenants. Some commercial properties with such strict criteria about tenants include BM Utama in the mainland Bukit Mertajam, and Straits Quay in Penang island.

Both are project examples of two contrasting backdrop. Straits Quay is a high-end sea facing project by E&O, with very high traffic coming from its branded tenants and expensive condominiums and landed property support. Meanwhile, BM Utama is a 7-unit exclusive commercial lot owned by BM Utama’s property developer, DNP Land, and is meant to become part of the lifestyle support for the almost sold-out BM Utama. The 7 units are called The Gallery, which is available for leasing only, to ensure the quality of retailers.

3. Price

Although people are talking about market price, as an investor, you should take into consideration the price and the size of the property. It is important to note that your property lease are usually based on long term contracts, and for some cases may span for 10 years instead of the normal renewable 1 or 2 years for residential properties. Also, you need to remember that returns from residential property comes from the capital value increase, but for commercial properties, it comes from income. Although commercial properties generally will cost more than residential properties, you will still need to sieve through to see if the investment can really bring you back a good return. Is the rental price of that property able to cover the loan that you took for the purchase?

If you are buying the property for the sake of making it into a hub for your own business, then it is up to you to ensure that the business that you are going to do will bring in enough sales and income to cover for the loan repayment of the property.

Commercial property leases provides an average contracted income stream of about 7 years.

4. Ownership

When you buy any property, you need to be very clear about the type of ownership that you have. Is it a freehold or a leasehold property?

Although leasehold properties are usually released with a certain amount of payment when the expiration term arrives, there may also be conditions where the land is taken back for new development. When the lease-land period is almost reached, property prices will drop significantly.

You also will want to check on the previous ownership of the property. Most properties may have more than one owner sharing the ownership of the property, so you should get a background check about this with a trusted lawyer, also to find out if there are any underlying problems to why the property is up for sale. Make sure the property sale gets consent from all legal owners.

How To Find Commercial Properties To Buy

So how do you find commercial properties that fit into your investment criteria? It can be challenging and it may take a while but it is definitely worth it.

Before you start your commercial property search, you should know: what type of property, what rate of return (cap rate), and how much money you want to spend.

And before you start looking for properties all across the U.S., I would suggest that you concentrate in your local market until you have enough experience to venture out.

So you have all of those questions answered, so lets take a look at different sources for finding properties.

Commercial Realtors

I would say that your best bet is to find a good commercial realtor to help you in your search. Not only can a good realtor locate the properties but they can also provide assistance with your due diligence (notice I didn’t say “do” your due diligence). Also, the seller of the property will usually have a realtor, so it is in your best interest to have someone representing you. By the way, it is usually the seller that pays the commission, so you won’t have any expenses with the realtor.

If you’ve done your homework and know exactly what you want, you shouldn’t have any problem finding a realtor to work with you. I would interview at least 3 agents to make sure that it is a good match between you. A good realtor will find commercial properties that you have outlined, as far as type and price. On the other hand, don’t waste their time either. They get paid at closing, so don’t have an agent spend a year finding properties for you and you can’t make a decision or if you’re scared to make that leap. Nobody likes to work for free, so be aware of that.

To find a commercial realtor, you can go online to the National Association of Realtors or you can also ask for recommendations from other investors or check out your local newspaper.

So for whatever reason, you’ve decided not to use the services of a realtor, what other ways can you find commercial properties?

Internet

The internet has exploded with different websites to help you find commercial properties. The most popular is loopnet.com. They offer free & paid viewing sources. If you are a serious investor, then pay the monthly fee to get the best properties. Also there is another website, costar.com. This site is geared towards commercial realtors but it offers excellent products.

Of course, there are other real estate forums and user groups where you can find commercial property for sale. The only down side to the internet search, is that it is very limited when you are searching for local properties. For local properties, try craigslist.com.

Networking

An often overlooked method for finding commercial properties is through networking. You can go to your local real estate investment group and post a flyer indicating that you are looking for commercial properties. You can try this also at Chamber of Commerce meetings. Also, join a local group of building owners, apartment owners, and shopping center owners associations.

The above methods will offer you the best opportunity to find commercial properties. However, you can also try the classifieds in your local newspaper or thrifty paper. You can also drive around and look for “For Sale” signs. They might not be the quickest way to find a commercial property but it can’t hurt.