Buying commercial property is a daunting process but it can be rewarding. With stable rental yields and long-term leases, there’s plenty to take advantage of.
If you decide to invest in the commercial market, there are some key steps you need to understand. Whether you’re looking to buy a small retail space for your own business or a commercial building to lease to tenants, you’ll find everything you need to know in this article.
Benefits of buying a commercial property
Commercial property includes retail buildings, office buildings, warehouses, industrial sheds, and mixed-use buildings. While residential property may be more familiar to new property investors, there are some reasons to consider commercial property for your next investment.
Benefits include:
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Owner/occupiers owning your business premises.
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Higher income yields.
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Capital growth potential.
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Longer leases.
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Consistency of income.
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Desirable long-term return.
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Diversification of your investments.
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Saving for retirement.
8 steps to buying a commercial property
If you have decided what type of property you'd like to buy, here are the 8 steps you should take to make sure the process runs smoothly.
1. Engage a commercial agent
Having personalised and professional advice from the beginning sets you on the right course for the entire process. That’s why your first step should be to enlist the help of an experienced commercial agent. An agent’s role is to take the pressure off you and make the purchase process as seamless as possible.
An agent will:
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Protect your confidential information.
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Provide an information memorandum for the property you are interested in.
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Process the paperwork.
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Assist you with Due Diligence.
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Assist you with structuring an offer.
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Coordinate communication and information.
At McDonald Real Estate, our agents also help you to find a property that suits you. We have a wide range of commercial sites available, each of which is carefully evaluated in our selection process. By contacting the team you can also be informed of commercial listings before they come on the open market.
2. Prepare your finances
Before you can get serious about making an offer or researching a commercial site, you need to organise your finances. Due to the larger deposit, banks are often stricter on commercial property loans and pre-approval may be more of a challenge. In saying that, commercial tenants usually stay in the property for much longer, bringing in a steady income for multiple years at a time.
To assess your financial position, consider the following:
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Can you afford the monthly repayments?
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Do you have a strong credit history?
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Can you pay the deposit?
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Are the tenants reliable?
Typically, commercial property loans require a deposit of around 35%, almost twice that of a residential loan. To secure the loan, you will also need to provide bank statements and a list of personal debts and assets. For more advice based on your circumstances, speak with your finance broker and accountant.
3. Inspect the property
Before you invest, you need to be sure the site is worth your time and money. This is your opportunity to learn more about the relevant industry, competitors, products and services, and target audience. It’s wise to compare your prospective property to others on the market so pay attention to the following features:
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Car parking.
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Zoning.
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Services like fibre and 3-phase power.
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Computer cabling and power points.
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Maintenance standards.
If a business is already using the space, take the time to visit, engage with them, and take note of how the business operates. This will help to identify anything that may require maintenance or if it can be converted for another purpose.
4. Register your interest
When you have decided a property meets your needs, it’s time to register your interest with the seller. Your commercial agent will act as an intermediary throughout this process, communicating with the seller.
The agent’s job at this point is to provide you with a comprehensive information pack about the commercial site. This will contain details that aren’t public, further informing your decision. The common elements include the following:
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Existing compliance information including the earthquake rating.
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Any restrictions on signage or exterior advertising.
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Any lease agreements.
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Details about health and safety.
Your agent will help you decide if the property is a good fit for you.
5. Appoint a lawyer and accountant
Before things become official, you should hire a reputable team of experts to help you, especially a lawyer and an accountant. This will simplify the process for you as well as improve your credibility as a buyer.
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A lawyer will manage the legal transaction, ensuring that the building is transferred into your name or company correctly.
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An accountant will handle your financials so that everything is aligned with your offer and ongoing expenses.
Throughout this process, your agent will coordinate all communication so that everyone is on the same page.
6. Get a valuation
Before you make an offer, you need to know the value of the property in the current market. This may also be required by the bank for financing. For an up-to-date valuation, your agent can recommend some commercial valuers. A valuation takes into account the local economy, average lease rates, relevant industry, site features, the standard of maintenance, and demand.
When you have a clear idea of the property’s value, you can determine if the price is worthwhile for you. Your agent and accountant can discuss this with you, taking your financial situation and future goals into consideration.
7. Make an offer
When you decide to go ahead with the purchase, you can make an offer. To do this, your agent will prepare a Sale and Purchase Agreement containing the amount you are offering and any conditions you wish to include.
When the seller has assessed the offer, they can choose to accept or reject it. If they accept, your agent will manage any further negotiations and make sure both parties sign the agreement.
8. Handover
When all the conditions outlined in the Sale and Purchase Agreement have been met, the offer becomes unconditional. You must pay the full deposit, as well as complete the handover process you have agreed to.
Next, you will settle the remaining funds and take over ownership of the property. The seller will usually include a handover document, containing the following information:
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Leases that are transferred with the sale.
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Regular maintenance tasks.
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Ongoing expenses.
The bottom line: Get professional support
When buying a commercial property, having the right team of experts behind you makes all the difference. Industry expertise and customised advice help to ensure that each step is seamless and stress-free.
At McDonald Real Estate, our commercial agents have years of experience in commercial real estate. With our insights, you can rest assured your investment is in safe and capable hands.
By partnering with us, you’ll receive:
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A curated list of commercial opportunities.
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Assistance with structuring an offer.
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Effortless communication.
If you still have questions or need tailored advice, book a chat with our friendly commercial team today.
Or, for more advice and details about buying commercial property, download our new guide. You’ll find everything you need to invest wisely, including all the steps to follow.
