Buying a commercial property is like entering into a new venture. If you run your own business, it is a far more cost effective decision than taking a property on lease and paying high rentals. Anyway, buying a commercial real estate is much more riskier than buying a residential property as it requires a complete analysis, which includes the comparison of all the available options, appreciation value, and study of expected returns on investment.
Below are a few important factors must be considered before purchasing a commercial real estate:
Location: A perfect location today might turn out to be an unwanted area tomorrow. You cannot foresee the future but you can determine the basis of the past trends of businesses in the industry under consideration. Also, the ease of transportation via road, rail or water transport is important in order to run the business successfully. For instance, a business near the LRT station, MRT station, and bus stop is better than a business in a rural area.
Budget: Any business or investment needs a budget planning before execution. Similar is true for a commercial property purchase transaction. It is critical for the investor to separate the budget allocation towards the property cost amongst all other business related transactions. This will also help in easy selection of the commercial property amongst the other available options.
Do a property inspection: It is important to know how and for what purpose the property was used before your purchase. This will give you an idea of what kind of repairs or refurbishment it might need in the future. Also, this would also help understand the resale value or rental price that could be earned in the future. For example, a coffin shop resale value will be lower than a boutique shop.
Restrictions to modify: According to properties law, there are restrictions on modifying the exteriors or interiors of the property. Refer to the lawyer or study the law details before you make any modification on the property. If not, twice the time of modification may double up the cost. So, get it right from the start! Before doing any renovations, please be clear about what you need and what you want, get a responsible builder or contractor, find out the do‘s and don’ts from the local authority.
Availability of other services: Other services like parking area, lift, security, etc. must also be carefully studied while finalizing the commercial real estate. These services, if available, not only help in running the business successfully but also contribute to the resale value or determine a better rental in the future.
Hidden costs: A lot of properties have certain hidden costs such as upfront fees and charges, utility deposit and charges, quit rent, parcel tax, property assessment rates, home insurance, and other costs as well. These costs are associated with running and maintenance of the property. These potential costs must be estimated in advance and discussed in the contract itself.
Infrastructure nearby: Infrastructure development in the area does affect the property value both positively and negatively. Developments like railway line construction, etc. might affect the value of your property value. For instance, a condominium with a linked bridge to shopping mall or MRT station, the price and value of the property will be higher than a property without any.
Before buying a commercial real estate, it is critical to evaluate various risks involved. Each risk can be listed down and must be studied carefully along with mitigates available.
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