What You Need To Know About Investing In Commercial Property

How do you know which commercial property to invest in?

When setting out to buy a commercial property, there is a lot to do to ensure the property you buy is right for you. Particularly when compared to residential property, there is even more to consider.

Whether it is coming to terms with what your ideal property should be, assessing the implications of its zoning or assessing the scope of its compatibility with various businesses, Tick Box Conveyancing is here to provide you with expert advice and research, guiding you safely from the “idea” stage all the way up to when you sign the closing settlement on your long-term investment.

As we build up a clear but complex understanding of your future commercial property and all the tendrils it has to local government law, finance and state obligations, we begin by asking these fundamental questions.

Before Considering a Commercial Property Investment

One of the first things you need to ask yourself when considering a commercial property investment is what do you intend to use the property for? You likely have a specific business-type that you know more than others, something close to home, a business-type you, personally, can easily co-operate with. You know what a building suited to that sort of business looks like.

Alternatively, perhaps you’re a first-time commercial property investor. Someone who is looking to buy a commercial property for your own business for the first time, or someone who is just looking for a good investment opportunity.

It is important to consider what sort of businesses can operate – whether your own or someone else’s – in the property before committing to any investment in commercial property. Having an experienced conveyancer on your team is a great way to get a full understanding of the properties you are looking at before you sign a contact.

With many decades of combined experience between our staff, Tick Box is the Melbourne conveyancer you want on your side. We understand Melbourne and its cultural and business landscape extremely well. With our all-encompassing but simple to understand pre-purchase reporting package which considers every risk and every opportunity, we will enable you to make the most well-informed investment play that you can in Melbourne.

How is the commercial property zoned?

Consider the following.

You see a second-storey above a travel agency – no signs, no clear access point, the blinds shut.

It appears to be a small home, what is known as a residential property, it seems cheaper to buy than a similar sized commercial property. You consider the possibility of a niche office business running up there, eyeing its FOR SALE sign.

Despite all common sense, the paperwork ultimately tells you (despite how it appears) that it is a commercial building.

It is marked on a council map within a “Limited Commercial District” – that’s why.

It is the simplest example of a zoning-related surprise.

Consider that every kind of building that you can think of has a strict, government-enforced definition.

You may not be allowed to simply renovate your way out of a property that doesn’t suit your desired clients, but then again, maybe you are allowed. Even then, is the building allowed to have the parking to accommodate for growth?

What exact permits will be required to alter the property, where are the zoning law that regulates your building’s size, facilities, parking, type of businesses, fire escapes, equipment and noise level?

Consider the land itself.

Is that subject to any planning overlays?

Are there any planned developments in the area that will make navigation around your property cramped or uncomfortable in the near future?

Is the wider zone going to have its definition changed, affecting the price and law controlling everything within it?

We will check every one of these issues in our pre-purchase research to ensure that the property is being used in a way that is permitted according to the current zoning that applies to the area. No zoning laws, no matter how obscure and specific they are to a local council, zone definition or building definition will go undetected when you are working with Tick Box – your expert partners in commercial property conveyancing.

Money talks: Financing Your Commercial Property Purchase

Purchasing a commercial property has higher stakes than purchasing a residential property.

For starters, most banks require higher upfront deposits – at least 30%.

A commercial property loan will most likely have an interest rate at least one percent higher than a residential one and it will also be capped at a “Loan to Value” ratio of 65%-70%. Renovation, which you’re likely to do if the building doesn’t quite suit your ideal tenant, is statistically very expensive when compared to residential renovation, inspections are more rigorous and the consequences of not measuring up to the high standards of commercial building definitions are more financially punishing.

Repairs and maintenance jobs are thus, as one can imagine, always urgent. The good news is that your tenant, provided you have a “net lease” agreement, will cover those maintenance costs as well as insurance, bills and certain taxes.

Commercial Property Investment: What You Need to Know About Tax

As for Capital Gains, GST and Land tax, we walk you through those and offer you peace-of-mind management of all expenses.

If you’re already asking, “what can I claim on tax?” you will be pleased to know that if your building depreciates in value, you can use that to lower your tax. If your lease is like the majority of leases on the market, you can increase the cost of rent by 3 or 4 percent annually, outpacing inflation even in these economically challenged times.

Another play you can make to strengthen the stability of your financing include housing a government-related body in your property – yes, flipping the tables and charging an arm of your local government.

Despite all the costs of maintaining a commercial property, the return is always worth it with Tick Box commercial property conveyancing. With a commercial property, you can easily offer a rental yield of up to 9% to 12%, which is a lot higher than what you can get with a residential property, which is 3%.

With our commercial conveyancing at your side, you can always make decisions with confidence that all the variables and risks have been identified and explained to you.

We will also liaise with your accountants and other trusted advisers to ensure we are all on the same page.

Is the Commercial Property ‘Subject To Lease’?

It is commonly said that a first-time commercial property buyer should aim for a property that already has an ongoing lease. Whether or not you do this is one of the biggest choices you’ll make.

A property with a business may seem like a secure deal, but what is in store for the future of that business?

Will your building continue to suit their needs?

Will they ask for structural changes for the property?

What, exactly, are their entitlements?

What’s in the fine print of the lease?

What do they feel entitled to, after their long time in the building, which they’re not entitled to?

Do they treat the owner respectfully?

Do they treat the building respectfully?

If conflicts arise, what will happen then?

If your investment property is left empty by surprise, how will you cover the interim period while searching a new tenant?

Commercial leases last much longer than residential ones, what you choose must not be a mistake.

The ultimate benefit of buying a vacant commercial property is that you are given the chance to prepare and “get it right” from the beginning.

You are given the chance to improve the building and attract the best client in that building’s history.

It may be tough to choose between one or the other, but our three decades in the industry make us leaders in navigating the most abstract, future-relevant questions. It requires not just a deep reading and understanding of all of the agreements and legal documents involved in a leased or unleased property, but a look into the area of the property itself, the trending behaviours of business owners and where your industries of interest are heading – especially taking into consideration the challenges of our frequent COVID-19 lockdowns.

How an expert commercial conveyancer can help

The commercial property market is too wide of a sea to navigate all by oneself. Obscure obligations, rules, agreements and costs typically make themselves known at the most disappointing moments possible. Out from zoning laws, leases and financial policies arise all kinds of vulnerabilities and stunted dreams.