3 Critical Considerations When Buying Commercial Real Estate
March 1st, 2016 by Geoff Baldwin
When seeking out a commercial property to purchase as an investment there are 3 critical considerations when buying commercial real estate according to long standing property investment expert and managing director of RE/MAX WA, Geoff Baldwin.
“Although with commercial property the owner has the advantage
of the tenant paying most of the ongoing costs the following should be high on
the list of considerations when selecting the right property to purchase:
Return on investment
Unlike residential properties where the value is mainly depicted by location, size and condition with commercial, the percentage rental return is a huge factor in determining value. ROI should be researched and expert advice sought as to what is an acceptable rental return on the particular property prior to making an offer to purchase.
Local vacancy factor
Try to avoid areas where there is a predominance of vacant properties as this is a negative indication. Supply and demand is a huge factor in determining the rentability of a commercial property.
Quality of tenant
The general rule is, it is better to have a slightly lower rent from a quality tenant who agrees to a longer lease than it is to get a higher rent from a less secure tenant on a shorter lease. Although above I said that ROI is important it is also important to have a tenant in place whose business
is unlikely to fail and who will consistently pay the rent on time every time.
“Although these are 3 critical considerations when buying commercial real estate there are many more issues and factors to consider so it is highly recommended that you seek out the services of an experienced commercial agent to provide guidance and advice.”