Investing In A Commercial Property
10 Mistakes to Avoid When Investing in a Commercial Property
Property continues to be one of the most popular investment options for many Australians. While residential investment properties dominate a lot of the media space, commercial investing can be equally as advantageous and a compelling alternative. As with all high-cost investments, while the rewards can be great, the risks can be just as scary. New investors can fall into common traps and mistakes that may leave them in a very disadvantageous position.
There are plenty of things to consider when investing in real estate and, even when you feel like you know it all, there will undoubtedly be a hundred minor things you haven’t even considered. While you can do it yourself, having an experienced professional on your side can point out any flaws in your decisions and likely save you a considerable amount of money and stress in the process. If you’re based in Brisbane or Melbourne, Jim’s Property Conveyancing has a team of highly-skilled, trustworthy individuals who can help you buy a property. In the meantime, here are 10 mistakes to look out for if you’re considering investing in a commercial property.
#1 Not having a plan
Now is not the time to wing it! There’s a lot of truth in the old adage; “fail to prepare, prepare to fail”. The property market is a fast-moving beast, and if you don’t have a concrete plan prior to jumping in, you’ll find yourself over your head. Emotional decisions rarely pan out well, and you’re putting a lot of money on the line. Before you even begin property-hunting, sit down with a professional – such as a conveyancer – and ask every question possible. Come up with a structured plan and stick to it. You need to contact property conveyancing Brisbane and get expert advice.
#2 Not having a budget
This is somewhat tied into the first point but deserves its own elaboration. It can be very easy to get swept up into an auction or a bidding war and end up spending beyond your budget. It’s not just the upfront costs that you need to face – the ongoing mortgage payments may be an issue for you if they are larger than you had initially planned for. Make sure you are aware of the taxes involved with commercial investment properties, as they will differ from standard house taxes and even investment residential homes.
#3 Buying during a seller’s market
This is a contentious point – realistically, it may not be possible with Australia’s current housing boom. Although that is mainly for residential properties, the commercial side is also affected. The commercial market is somewhat up in the air at this point – there’s been a more considerable rise in employees working from home, which may be beneficial to potential investors. Still, there’s also been an equally large rise in e-commerce and their need for spaces, which equals out the playing field. The best thing to do is to get educated – talk to a real estate agent for advice about the current state of the property market and engage a property conveyancer for advice on the legal aspects of buying a commercial property. This will allow you to make a more informed decision to begin looking for an investment property or try to hold off until the market is looking better.
#4 Lack of knowledge about the area
A commercial property will not have the same area pulls as a residential home – it doesn’t really matter where the closest private schools are! You’ll have to learn about the area from a commercial point of view – is your office space in a desirable business location? Is your warehouse space easily accessible for trucks and larger vehicles? These are just two of the many area details you need to know before purchasing any property.
#5 Lack of knowledge about the different types of commercial properties
As with a lack of knowledge about the area, it’s also important to have an understanding of the different types of commercial properties and how this can affect you as an owner. It would be a very different experience to invest in a high-rise office block than it would be to buy a sprawling set of garages or warehouses. Just because they are both ‘commercial’ does not mean they have much in common, if anything. It would be a mistake to consider all commercial properties as having the same modes operand.
It’s also worth taking into account that different property types may have different types of rental leases. Being knowledgeable about the standard kinds of rental leases will be another vital piece of information to know, as it can very much affect your profit margin and security with any tenant. Are you planning on long or short-term leases? How much will you be out of pockets during vacancies between tenants? Once you start digging into it, the number of variables to consider may seem endless!
#6 Beware of buying with your heart rather than with your head
Buying any property is a high-stress, high-emotion situation. You may have your excitement and hope invested into one property, only to be met with crushing disappointment if you miss out. Riding that constant wave of emotions is exhausting – and it can cause us to make illogical decisions. Don’t panic buy or purchase a property because your first impression is that it’s a great steal. Always slow down, do your research, chat with an experienced real estate professional and then make an informed and reasoned decision.
#7 Failing to do due diligence/compliance checks
This is a mandatory action for any buyer of any type of purchase, ever! Never put all your faith in the seller’s word – it would be a huge mistake to not do your own compliance checks on the building. Your property conveyancer can run property searches for you and inform you of any encumbrances or easements. You should then get an independent party to do a building inspection. If there are any significant faults, you may reconsider purchasing this particular property. For minor defects, you could re-discuss the contracted clauses and price. Once the contracts are finalized and exchanged, any later problem you find is yours to deal with, so it’s absolutely crucial to do these checks before signing anything.
#8 Buying a fixer upper
A big property with a small price tag and a promise of being an easy fixer-upper opportunity – it’s a trap many confident investors can fall into. A few breakthroughs and viewings of a house will not be a good enough indication of how long renovating the property will take. Things can be delayed for months with many renovations and usually end up costing more than initial starting quotes. Not only that, you’ll be without rent while fixing it up and will have to foot all bills yourself. Before buying a property that needs significant work, really take the time to consider that and ensure you’re making the right decision.
#9 Not considering future costs
As well as ongoing mortgage payments, tax, council rates and insurance costs, you will face additional expenses after buying a property. These expenses can cost a lot more than you might think – a good idea when looking at properties would be to include this question in any discussion with the seller. Alongside all of these costs, you’ll also be liable for any property faults that need repair. Don’t buy a property with incredibly high operating expenses that you know you’ll struggle to meet.
#10 Not thinking long term
No one can predict the future, but that doesn’t mean it’s not important to consider the long game. Most investment properties are purchased for one of these reasons: income from rent, capital growth or a purchase you plan to extend or develop to sell back later. Which of these does your purchase fall under? Is the property you have in mind the right one for this goal? What do you plan to accomplish with this investment property? These are just some of the questions you need to ask yourself when considering your property’s potential and how it will fit in with your life in ten to twenty years’ time.
If you’re considering buying a commercial property, seek legal advice from Jim’s Property Conveyancing. Phone 13 15 46 for more information. You need to contact property conveyancing Melbourne and get expert advice.
Frequently Asked Questions
What should I consider before buying commercial property in Australia?
Research the location, market trends, and potential rental yields, and understand zoning laws and property taxes specific to Australia.
Do I need special approval to buy commercial property as a non-resident?
Non-residents may need approval from the Foreign Investment Review Board (FIRB) and should check current regulations.
What are the typical costs associated with purchasing commercial property in Australia?
Costs include stamp duty, legal fees, building inspections, and potential GST, depending on the property type and location.
How can I finance a commercial property purchase in Australia?
Financing options include commercial loans, private lending, or leveraging existing assets, often with different terms than residential loans.
