If you already understand the risks involved when you buy commercial property, then several important factors should be taken into account when investing either you or your company’s money into a commercial property.
The following sections cover some of the more important items to consider before you buy commercial real estate. A professional commercial real estate agent can provide you with further advice.
- Tenure
Most properties in Singapore are leasehold due to land scarcity although there are some which are freehold. Leasehold properties are naturally cheaper than freehold but if the rental income can cover your mortgage, the tenure should not really be a concern.
The tenure of the remaining lease on a property being considered for purchase will affect not only how much an investor has to pay upfront, but how soon he or she will need to sell the property to turn a healthy profit.
It is, therefore, important to think about how long the investor intends to hold on to the property. An investor who intends to hold on to the property in the long and medium term should be careful not to purchase properties with few years of lease remaining.
- Location
Pay as much attention to the location of your commercial premises as you would when buying your own home.
Those who buy commercial property regularly know that location is a key determinant of whether or not the purchase will ultimately turn out to be successful.
Most renters and corporate owners of commercial real estate want to be located as close as possible to their clients, employees, suppliers and vendors in order to minimize transport costs and maximize exposure to customers.
If you plan on renting to a business, make sure the commercial property is either attractive to potential renters or can be economically improved to be attractive.
- Condition
Take the time to assess carefully how much repair the property requires before it can be effectively used or rented out, how much those repairs are likely to cost and how long they should take to be completed.
As with most investments, time is money in commercial real estate, and if the property will not be ready to be occupied soon for some reason, then investing in it as a rental property or as an alternative to your current commercial location could turn out to be a costly mistake.
- Flexibility is key
Look for a property that is flexible. If all goes well, your business is likely to expand and change during the time that you own the property. So find a commercial premises that can be adapted to your business as it grows.
- Can you sub-let?
Retain the option of sub-letting part of your premises. This can be an excellent way of managing any cash-flow challenges, and retaining commercial flexibility. But you will need to make sure that your mortgage-lender permits sub-letting part of your premises. Similarly, read the lease carefully for any clauses that may restrict sub-letting.
- Access and Parking Issues
You need to make sure that any commercial property you are considering buying offers easy access to customers and sufficient parking to accommodate them, as well as enough parking spaces for staff that might be employed on site.
- Zoning and Improvement Limitations
Not all commercial properties are zoned for the same uses or are able to be permitted for certain improvements. You will want to check with the local planning department to find out what the zoning of the commercial property you are interested in purchasing is and what it permits.
For example, some commercial properties are located in industrial use zones, while others might be zoned for commercial office space or retailing purposes. Still other commercial properties may be located in a historical preservation area and hence substantial changes to their façade would not be permitted.
- Budget ahead
Remember to budget for the maintenance of the property. As the owner of commercial property, you will incur long-term upkeep and any ongoing costs – just as you would as the owner of a private home. Budget ahead to avoid any surprises later on down the line.
- Secure a business loan
You may require a loan to help boost your buying position. A commercial mortgage is widely considered one of the most common forms of finance used to buy a commercial property. You should look across the market to compare mortgages and secure the best deal.
Lenders require a significant amount of information before agreeing a commercial mortgage. They will typically ask you for a range of details, which might include a business plan, commercial mortgage repayment proposal and business bank statements and accounts.