C H E C K L I S T F O R B U Y I N G A P R O P E R T Y
Congratulations! You have made the important decision to buy a commercial property. There are a number of things that we need to review before we explore the market and find you a commercial property that suits your needs. If you are new to the commercial market, it is important to realise that it is quite different to the residential market. This document will help to outline some of those differences and point out what to look for. One of the things that you can be assured of is that there will be several properties being marketed in your area that will fit your buying criteria. For that reason you need to ensure you view all the available options that meet the needs of your business or your investment desires. It is a fact that in most cases, well presented premises will sell quicker than a poorly presented site. Buyers and investors will be swayed by the first impression, so a measured investigation will put you in good stead when you are reviewing the important factors. We would also strongly suggest you discuss your plans with your bank and your solicitor. Many banks will be very helpful and be able to outline their lending ability on different properties. This will give you a sound understanding on your purchasing power and exactly which properties come within your budget. On the following pages there are some helpful suggestions for you to go over that will assist in getting you the right result. B U Y I N G A C O MM E R C I A L P R O P E R T Y
When you first approach an agent, it is good to have a list of requirements that you may need. Is it for your own business, and if so do you need retail, offices, a light commercial operation or an industrial workshop? Or is it for an investment that provides good returns now or maybe the possibility for growth and for improvements to be made. There are some general things that will come up for all enquiries. The topics of interest include: 1. Is this site suitable for the business you are proposing? 2. When can possession be gained? 3. What is your budget? Does it compare well with other sites that are similar with regards to the per square metre rate, size and location? 4. Do you need carparking or will future tenants? 5. What is the zoning of the property? Does this site and area lend itself to your plans for the site whether it is for your own business or investment? 6. Are all services you require available to the site? E.g. is there fibre and or sufficient power to the site (e.g. 3 phase). 7. Is there computer cabling installed? Is there a data room and sufficient available power points to all work stations? 8. Will a change of use be required? For example for a new food outlet or restaurant. 9. Are you, as the purchaser, prepared to spend any money on the site after the purchase? WH A T A R E Y O U L O O K I N G F O R?
The process for purchasing a site can be made a lot smoother for everyone if a number of actions or requests are completed earlier rather than later. As we want to give you the very best chance of acquiring the property you desire as soon and as painlessly as possible, it will be of huge assistance to have some of the following information understood or to have a decision ready when the questions arise. Here are some of them in no particular order: 1. What is the earthquake rating and has a Detailed Seismic Assesment been prepared? 2. How can we maximise the property to get the best end result? Is there the possibility to subdivide or further develop the site? 3. Is the maintenance schedule up to date and does the property present itself well? 4. Are the facilities clean and do they all work? 5. What is the exact size of the site? 6. What are the outgoings for the property? Including rates, insurance, body corp fees if applicable, water rates, management fees and so on. 7. What is the return on investment now and what are the lease situations going forward. 8. Are there any road upgrades or changes on the council plans that may affect this property? 9. When was the last review or valuation done on the property with regards any leases? A market appraisal will assist in understanding the site in the current market. 10. Will you require an engineers or builders report? Is there anything to suggest that the site will have any issues. Financiers may require these reports. 11. If this is an industrial site, are all lifts, hoists, gantry cranes in working order? B U Y E R C H E C K L I S T
Commercial Vs ResidentialWhen first investing in commercial property, a lot of people look to compare it against residential property investment because that is what they understand. The following will help you gain a better understanding about commercial investments as well as how they compare to residential. Rate of returnCommercial rate of returns are usually higher due to the higher levels of risk. The reason returns are greater for commercial is to account for the added risk. LeasesThere are several key aspects to a commercial lease. a) They are usually for a set period of time. For example 3 years. b) They will also have “Rights of renewal”, e.g. 2 x 3 years following the initial term. This is where the tenant has the right to renew the lease for a further term as dictated by the lease agreement. Under normal circumstances, the landlord cannot deny the renewal of the lease. c) Rent reviews are built into the lease and will occur at set times during the lease period. These can be set increases, inflation adjusted increases or market adjusted increases. Vacancy risk There is a greater risk with commercial buildings that when a tenant leaves that it may be vacant for a longer period of time than residential property. Specialised buildings could be vacant for a year or more as agents seek to find a tenant who has needs suited to your building. This is one of the reasons why you see a greater return for commercial buildings. B U Y E R C H E C K L I S T
Repairs and Maintenance It is important to check a building thoroughly before you buy to ensure you fully understand the condition of it. Repairs and maintenance can be a lot higher for a commercial building. Operating expenses With commercial leases, the tenant pays the operating expenses. The operating expenses are usually, but not limited to; rates, building insurance and water costs. There could be other costs as well and these will be discussed at the time of writing the lease. With residential property the landlord pays for rates and insurance. B U Y E R C H E C K L I S T
Most properties on the market will have a brief information pack, called an Information Memorandum. This Information Memorandum outlines most of the details required to allow for an initial understanding on whether the property fits your guidelines. It is important that you review the information memorandum thoroughly to allow yourself to gain a good understanding of the property. This will then allow you to narrow down your choices and make the final decision easier. Making an offer Once you have decided upon a building you wish to purchase, then you will want to make an offer. The steps below will provide you with a simplified version of the sales and purchase process: 1. Your McDonald Real Estate agent will prepare the sale and purchase agreement. You will need to provide basic information such as: a) Price b) Unconditional date and Take over date c) Who your lawyer is. d) The entity or nominee buying the property When completed you will want to have it checked by your lawyer. 2. Sign the agreement. 3. The agent presents it to the vendor(seller) 4. There may at this stage be some negotiation 5. The vendor signs. 6. You as the purchaser complete any due diligence. 7. The contract goes unconditional and a deposit is paid. 8. Settlement occurs and you take ownership I N F O R M A T I O N M E M O R A N D U M Notes
Russell Atkinson M:027 452 5544 O: 06 757 3083 E: russell.atkinson@eieio.co.nz M A K E C O N T A C T Kevin Hight M: 021 746 371 O: 06 757 3083 E: kevin.hight@eieio.co.nz Find us on Facebook and LinkedIn to keep up to date with the latest listings and information. Our Commercial Team is dedicated to help you in this process, contact our Team to receive the support and experience in purchasing your next property.
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