What to Consider When Purchasing Your First Commercial Property

When it comes to the world of property, diving into the commercial sector can be a lucrative investment of your capital. Like any investment though, there is an element of risk. Before signing contracts and putting your valuable resources on the line, it’s important to be diligent and to know exactly what you’re getting into.   

With that in mind, the Gorvins commercial property team have put together some comprehensive insights to keep you informed as you embark on this journey. In what follows, we’ll look at how you can best prepare for your foray into commercial property and how to make an informed decision on whether it’s the right investment for you.

Is it the right time to invest in commercial property?

Market timing is both an art and a science. Before investing, it’s crucial to gauge the health of the broader economy, as recessions or downturns can significantly impact commercial property values. Additionally, observe interest rates; lower rates typically encourage borrowing and investment. Right now, in 2023, interest rates are higher than they’ve been for a long time, putting a big strain on borrowers.

Also, it’s always advisable to consult property experts or financial advisors, like those at Gorvins, who can provide insights tailored to your situation.

Remember, local factors in Stockport or the broader UK might also play a role, so regional knowledge is invaluable.

The different types of commercial property

From bustling retail spaces to expansive warehouses, the variety of commercial properties is immense and each has its unique advantages. For example, office spaces might offer consistent rental income but might be more affected by economic downturns. What’s more, with the advent of home working, there may be less demand for traditional office spaces in our towns and cities. By contrast, industrial properties could have longer lease agreements, providing more stability.

Make your choice based on what aligns with your financial goals, market understanding, and personal comfort level. Being familiar with the nuances of each can provide a competitive edge.

Availability of commercial mortgages

Acquiring a commercial mortgage is often more intricate than a residential one. While they can be more flexible, they often come with higher interest rates and larger required deposits. It’s also common for lenders to assess the potential profitability of the property. Do your homework: Research different lenders, understand their terms and consider consulting with financial experts to ensure you’re getting the best deal.

Know your competition

Competition analysis isn’t just for businesses. When entering the commercial property market, research who else is investing in the areas you’re eyeing. This knowledge can help you identify market saturation points, potential pricing strategies, and even open opportunities in overlooked areas. Moreover, familiarising yourself with key players might provide networking opportunities for future deals.

Find the right property

While a property might look perfect on the surface, it’s always best practice to do your homework and delve a little deeper. Always consider factors like structural integrity, the age of the property, and potential renovation costs. Employing a trusted surveyor can save you from future headaches and stop you from making a bad investment. From a legal perspective, you should always have a qualified solicitor look over the terms of the deal. This will ensure that there are no lurking legal complications, giving you peace of mind and ensuring a smoother transaction.

Get the right location

The location can make or break your investment. Think about the potential clientele or businesses that would rent your space. A retail shop requires foot traffic, an office space benefits from being near transport hubs, and an industrial property needs easy road access. Going one step further, be mindful of future city or area development plans. An area’s growth potential can significantly impact property appreciation.

Freehold vs leasehold

Owning a property and the land it’s on (freehold) offers more control but typically comes with a heftier price tag. On the other hand, a leasehold might be cheaper upfront, but the recurring costs and potential restrictions can be limiting. Additionally, as leasehold durations decrease, the property’s value can also diminish, affecting resale potential. Always weigh the pros and cons based on your long-term plans.

The importance of planning permission

Alterations to a property can increase its value, but they often require planning permission. Navigating the maze of local regulations can be daunting, but understanding them is non-negotiable. Before buying, check if the property has had any refused permissions in the past, as it can indicate potential future issues. Partnering with a local planning expert can expedite and simplify this process.

Key costs to consider

Before embarking on the acquisition of commercial property, it’s important to consider the costs that such a purchase entails. Only by seeing all pieces of the pie can you know whether an investment is right for you or not.

• Deposit: Commercial properties usually require a sizeable deposit, often starting at 25%
• Consultancy costs: Services from surveyors, architects, or property consultants can add to your initial outlay
• Stamp duty: This tax on property purchases can vary based on the property’s price and its intended use
• Essential bills: These include utilities and maintenance
• Business rates: Commercial properties are subject to business rates which are a kind of tax
• Energy costs: With green regulations becoming more stringent, it’s essential to factor in the energy efficiency of the building and related costs.

A legal expert or financial planner will be best positioned to help you navigate these considerations.

Using financing to invest in commercial property

Leveraging borrowed money can amplify your returns but also comes with risks. Exploring various financing options, from traditional bank loans to modern solutions like crowdfunding, can provide the needed flexibility. However, understanding the fine print, from interest rates to early repayment penalties, is crucial. Consultation with financial experts can be invaluable here, ensuring you’re well-equipped to make informed decisions.

Putting in an offer and sealing the deal

After thorough research and finding that perfect property, it’s time to take the plunge. This stage is where negotiation skills come into play. Being informed about recent sales or rentals in the area can give you a bargaining edge. And remember, having a competent solicitor by your side can streamline the process, from the initial offer to finalising the deal.

The world of commercial property investment is rich with opportunities, but they come hand-in-hand with complexities. With diligent research, expert consultation, and a keen understanding of the market, your first commercial property investment can set the stage for continued success.

Thinking about purchasing your first piece of commercial property and need advice? Gorvins’ team of expert property solicitors will support you to make informed decisions and help you kick off your property portfolio.

Call us on 0161 930 5151, email us at enquiries@gorvins.com or fill out the online form.