Commerical Property

Dav
I haven’t purchased any commercial property but from what I read the guidelines are the same as purchasing residential. The one main thing that stands out for me is that commercial properties can be vacant for much longer periods then residential, so you have to make sure you can service the loan for extended periods when you don’t have a tenant. Also you need to be prepared to pay for refurbishments to cater for the tenant. Property investor magazine had an article on this in a recent edition.

Hope this helps
BB []

Hi Davo70

Have never bought any commercial property so far…… but, thought Dolf de Roos book Real Estate Riches has a few good pointers on commercial property if you can get hold of a copy. Certainly seems like a good place to start IMHO

Take care
Dave []

David,

I recently inherited a commercial property (and the associated debt [xx(]) so I don’t have experience in the ACTUAL purchasing. I do have experience in the problems. Our building has 2 shopfronts – front and rear. The rear tenant has access across the land of our “next-door neighbour”. This “neighbour” had been wanting to move into our front shop but negotiations stalled and we found someone else. As a result, the owner of the building next door tried to blackmail [!] us by threatening to close access to our back shop across his land if we did not allow him to rent the front shop.

You still with me? Anyhow, we refused to deal with this character (a real estate agent of all people) and as a result he has placed a fence (along a brick wall) which blocks off our rear entrance. After speaking with solicitors and council, we are powerless to do anything as the right of way was extinguished in the 60’s. The rear tenant feels they must now move to other premises (as a further insult, the “neighbour” tried to get our tenant to move into the back of his building!) so we are out of money since a lease is still being drawn up for this person, allowing them to leave!!

The moral of this story is that you MUST, MUST, MUST do lots of due diligence, even more so for commercial properties because they are often sharing common walls, etc. and as you can see, you can have even the most taken for granted things ,i.e. access to your door, removed. Get your solicitor to check titles (and not just your own), etc for these basic rights and anything else which could affect people’s access to the building.

Also, don’t forget to add GST to your outgoings when working out the costs of running the premises.

Finally, with such large $$ in rent, you are in a better position to negotiate property mgt fees if you get a RE Agency to manage. We were also able to get a reduced mgt fee on our residential property as well (25% less) to manage both.

Personally, I love having a tenant locked in for 52 weeks and multiple years. If you have the right position, right rent , and start looking early enough for the right tenant, you should never have to worry about the lengthy vacancies some commercial owners suffer. Follow Steve’s rule that you look after the Tenant first…excellent advice.

Good luck,

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