Buying a commercial property can often be a good investment opportunity and can offer a more secure investment with potentially larger financial returns than investment into residential property. This guide details helpful tips and tricks which every purchaser should consider when buying a commercial property.
Deciding whether to invest hard earned money into commercial or residential property is not a decision which should be taken lightly by prospective investors. Both types of investment opportunity offer different rewards and ultimately, they each present their own set of challenges.
What types of property investment are there?
Buying a commercial property is often more time intensive and costly than buying a residential property. However, it can potentially be a very rewarding and worthwhile financial exercise for prospective investors.
Investment into residential property is often a more comfortable option for those who are new to investing into property given that the whole idea of owning residential property is familiar to many who are already lucky enough to own their own homes.
Investors consider commercial property as the better investment opportunity
In recent years, many investors have started to consider commercial property as the better investment opportunity given the hikes in residential stamp duty land tax and other tax changes coupled with the frequent changes to regulations, legislation and policies.
Here are our top 10 points of consideration for those new investors who do indeed decide that investing into commercial property is the right investment for them:
Before making an offer on a commercial property, you should ensure that you have factored additional costs into your budget. These costs include but are not limited to, legal costs, surveyors’ costs and Stamp Duty Land Tax, to name but a few.
2. Location, location, location
A key factor in making a good investment into commercial property is the location of that property. The best tenants are those whose business performs well within your premises as this offers an investor higher security. A prospective investor should consider the type of business it would ideally like its tenant to carry out, and then establish whether the location of the property is suitable for such use. For example, a warehouse premises in a pedestrianised area within a city centre may be considered by prospective tenants as being impractical – how would their daily lorry deliveries work when the property is not accessible by vehicle? Perhaps in this situation, an out-of-town option where lorries can easily park would be more desirable to tenants. On the other hand, some prospective tenants may wish to have a central location with the benefit of passing foot trade from a city centre, such as shops for example.
3. Knowledge is power
Make sure you undertake your own investigations into the commercial property market of the area where your potential investment is situated. It is a good idea to look at the market value of similar types of property in the immediate area to ensure that you are paying a fair price. You should also consider any rates and taxes which you may be responsible for, once the purchase has concluded, particularly during any void periods. If only for information purposes, it is also a good idea to establish the rental values of similar premises nearby. Is the property going to give you a good return on your investment? It is also worth looking into the possibility of altering the layout of the property – is it possible to let the property to multiple tenants in order to create a greater monthly yield?
4. Appoint those you trust
With full consideration to the points above, once your offer has been accepted by a seller upon your desired investment property, it is time to appoint those you trust to help you conclude the transaction. Here at Gateley, we hold discussions with our clients at the outset of the transaction to establish the reason behind the investment and also to establish any future commercial goals and objectives of our clients. With this in mind, we tailor our advice to each and every client to assist and guide our clients throughout the legal process. We have a tax team within Gateley Legal who can help us with any tax-related matters. Gateley Capitus, a specialised tax consultancy, can also advise on any valuable tax incentives which may be available on your investment, including capital allowances.
5. Read and re-read
Once the sale of a commercial property is agreed via an estate agent, the buyer and seller (and their solicitors, where appointed) are issued with a document called Heads of Terms. This document details the basis on which the transaction is to proceed. It is important that you check and double check the Heads of Terms to ensure that everything contained therein is how you understood it at the outset of the transaction. If there is anything which you are unsure about, you should raise this with your solicitor at the first available opportunity.
We always recommend that you get the property surveyed by a reputable surveyor. When investing a large sum of money into a property, you should ensure that you will not be faced with any unwanted surprises later down the line. Gateley Vinden includes Chartered Building Surveyors who can undertake building surveys in order to help you identify any defects which the property may be harbouring.
7. The legals
usually the solicitor acting for the seller issues the contract pack to the solicitor acting for the purchaser. This will include a draft contract for the sale, title information documents, replies by the seller to the Commercial Property Standard Enquires and other ancillary documents such as an Energy Performance Certificate, Fire Risk Assessment (if applicable), Asbestos Survey (if applicable), and any planning permissions/ building regulations completion certificates which the seller may hold, to name just a few. Following receipt of the contract pack, your solicitor will undertake the due diligence and request any searches deemed necessary, upon the property. Your solicitor will advise you which searches should be undertaken based on the location and your intended use of the property. This is often the longest stage of the process and can take a few weeks to be concluded.
8. Ask away
Throughout the course of the purchase, you may well have questions or think of matters which you wish to be clarified. Across the Gateley Group, we encourage our clients to raise every question and concern that they may have at any point throughout the transaction. Remember, you have appointed the advisers who you trust for this very purpose.
Your investment purchase has now completed, and the property is yours. Your solicitor will deal with all post-completion matters such as the submission of the Stamp Duty Land Tax Return and make any necessary payment to HMRC. The transfer of the legal ownership of the property (often in the form of a Transfer Deed) will be uploaded to HM Land Registry in order to update the title documents to reflect your ownership. Once the Land Registry has completed the application, a copy will be sent to you for your records.
Now is the time that you can reap the rewards of your investment. You should appoint a trusted estate agent to help you market the property to prospective tenants. Your estate agent will guide you on how your property should be presented to the market along with advice on the best lease terms for a property of that nature.