5 Mistakes You Can Make When Buying A Commercial Premises
Making an investment in commercial property can be a hugely rewarding and wise decision. It can cover a wide range of building options, including warehouses, car parks, office space, and retail. The yields involved can often be higher and the tenant will usually sign a full repair and insurance lease.
However, very few investors are completely familiar with the process of purchasing commercial property and there are some common drawbacks that you should be mindful of which can delay and surprise even the most experienced property investors. So, what mistakes are common when buying a commercial property?
The Tenants No Longer Want It
This can be a result of multiple different factors, for example, if the price is too high or if the building is not suitable for the intended use. If the tenant or business interested isn’t satisfied with the requirements that they want or need for their business, then your investment may be sitting empty for a period of time. As a buyer, you should analyze the different attributes of other local and competitive properties and how these factors may potentially have an effect on the business and your ability to then let or re-let will become much more difficult.
Before you invest in commercial property, you should talk to the storefront business (if it is occupied) and inquire as to whether they are planning on renewing their lease. Ask what their lease is like and if there are any signs of more businesses relocating within the area.
Having Poor Footfall
Whilst this has links to the first point, when it comes to letting a property then the business will need as much exposure as it can get, especially if it involves selling or marketing to the general public. The best properties are usually in a location or position where people will flock to, but also where they usually visit or pass.
The business location should always be at the forefront of your decision when choosing whether or not to purchase or invest in a property, but more so with commercial premises. One thing to be mindful of is to not fall for common tricks of the trade, such as impressive, but short term, improvements or flashy fixtures and fittings.
Not Factoring In Additional Costs
Anyone can purchase property, but making it work is another things. If the commercial property you are buying is old and comes with poor services, such as heating, then you will need to plan a detailed checklist to factor in renewing these before the property is going to be occupied again. This is where it may be beneficial to get a building or surveying professional in or seek advice from a commercial property management company. They can then investigate the property and draw up a report. It is, however, still your responsibility to check to property yourself and make sure you understand the implications.
Make sure that you walk around with a trusted builder and don’t turn a blind eye to anything you spot. The seller is unlikely to volunteer any information and it is your job to raise them. Ask your builder or building inspector to inspect each and every unit, area, attic and crawl spaces before you continue.
Wrong Property Decisions
This is perhaps one of the most common mistakes that come with investing in commercial property. You will need to find a property which suits both your financial goals, as well as your leeway for risks.
The three most common choices when it comes to buying commercial property is income, strategic purchases, and capital growth. By letting your emotions get the better of you, you will be making a costly error. You shouldn’t purchase or invest in commercial property which you consider affordable just because you like it. When making a commercial property purchase, you will need to, and should, base your decision on the historical performance of the property and the location, as well as the yield and tenancy type.
Not Knowing Your Tenants And Their Business
It is vital that property managers and owners of any potential rental property carry out screenings on their potential tenants, for example by carrying out credit reports and looking up financial information. But, for commercial property managers and landlords, going the extra mile when it comes to research is important to check that they are creditworthy and that you have assessed the likelihood of the business potentially going bust.
Another thing you should check is to see which business rates are payable and if there are any other businesses that are similar in the area. Be sure to see how these businesses are doing financially and make sure to ask for cash flow statements, too.