The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions.
When purchasing a commercial property, it is always best not only to look at the current return but also the potential growth in the location and increase in capital value.
Here are some points to note or question when reviewing the existing or new lease in place.
National or global tenant
Long lease (10 - 15 years)
Options - these are usually in 5-year period and are really mostly of benefit to the tenant
ROI (Return on Investment) - better than bank interests
Annual increase - greater than CPI
Market reviews in place - typically at the end of each term
Who pays the land tax?
What are the outgoing paid by the tenant?
Of course, it is always best to seek profession advice from your solicitor, financial advisor or accountant.
Buying a commercial retail, office or industrial property requires similar research to residential purchases. The principals are much the same as any property investment, but the results can be even more rewarding.
We all expect our investment property to grow in value, both in the eventual capital value and in the rent that it will generate. Therefore a choice needs to be made on two important criteria, location and quality.
Keep in mind that this is not a property that you will occupy and always look at the property through the eyes of a potential tenant.
Property located close to transport, with good access and parking facilities will be in greater demand and usually command a higher rental.
The building needs to be desirable and the right size to suit the area’s typical commercial requirements.
The building should be sound and as low maintenance as possible.
As a rule, more modern buildings require less upkeep and are usually more desirable to tenants
Commercial buildings must comply with strict safety requirements for their occupants. Make sure any property you consider meets these requirements or be prepared to invest in their upgrade
A wide range of lending institutions are prepared to lend on a commercial property.
Institutions such as banks, second tier lenders and credit unions, etc. will have details on the different options available to meet your specific needs.
Institutions such as banks, second tier lenders and credit unions, etc. will have details on the various options available to meet your specific needs.
First National Commercial can offer you assistance through our affiliation with AFG, Australia’s largest lender. Finance can be provided from a range of competing for lending institutions to ensure the best possible deal for you. Details can be obtained by contacting your local First National Commercial.
Negative gearing is a common term associated with property investment. In simple terms, it refers to the situation where your outgoings may, particularly in the early stages, exceed the incoming rent of the property.
Where this occurs, there is the ability to gain tax advantages by claiming tax deductions on the outgoings.
If you are a PAYE taxpayer, you don’t necessarily have to wait for the tax adjustments. You can apply under section 221D of the Income Tax Assessment Act for a tax reduction.
Nonetheless, negative gearing is not for everyone because there are some risks. Property values may decline from time to time, the flow of rental income may be interrupted, interest rates may rise or your ability to finance the cost of your borrowings may suffer. Investors need to take account of their ability or willingness to deal with these risks and to discuss them with their advisors before negatively gearing an investment property.
For further advice on negative gearing and appropriate application to Australian Tax Office, we would recommend consulting your accountant or financial advisor.Successful investment in commercial property requires the property to increase its income and value over the long term. Investment in commercial property is not suitable for the short term, even though it sometimes can provide a benefit.
Specific insurance packages are available to commercial property investors that not only cover the normal building and contents but also protect you against a tenant defaulting on rent payments, vandalism etc.
Marketing your commercial property for lease is something that requires careful consideration. Making your property stand out amongst the myriad of competing properties being advertised requires skill and experience. A prospective tenant will want to know the following
what is the annual rent?
what are the annual increases?
what is the term of the lease and options?
How do you determine the rent? This is based on numerous other factors and can vary but generally below is an example.
the location and growth in the area
the buildings and inclusions
the land area
the outgoings paid by the tenant
historic trading information
This is where an experienced commercial agent can help - not only be a guide on market rents but also finding you the right tenant. Rentals can also be determined by licenced Valuers and when starting with a new lease it can be wise to obtain a such a rental assessment.
If you own, lease or need to buy or sell commercial or industrial real estate, we at Frist National can help you avoid the pitfalls when finding, negotiating and finalising the deal.
As a commercial agent we are fully qualified to provide you with solutions to your needs. Should you be unsure of what to sell or lease your property/business for we can assist you here too. Once you provide us (confidentially) with your property/business details we give you with a market assessment that is in line with the current sales and give you a greater understanding of whether this is the right time for you to sell.