A decision of buying a commercial property is similar to entering into a new venture. All the parties involved in the deal— buyers, sellers, etc.; are susceptible to risks and the future uncertainty. At the same time, if there is a price appreciation, all the associated parties reap the benefits. To strike the right deal, here are some of the factors that should be considered if you want to buy a commercial property.
1. Prepare a budget= Any activity which requires investment demands for a proper budget planning before execution. The same holds true in the case of commercial property also. It is indispensable for an investor to properly lay down the budget allocation towards the purchase of property along with other business related transactions. Moreover, if you will do this, it will make it easy for you to choose the right commercial property amongst the available options as per the budget.
2. Location is important= Properties in a prime location are much sought after as it is easy to procure loans from banks for such properties. On the flip side, properties in a prime location are expensive. For instance, in Delhi, property rates are higher as compared to the other parts like Noida, Faridabad, Bhiwadi, etc. A lucrative location of today might become an unwanted destination tomorrow. Though it is difficult to predict the future; you can check the past trends to analyse the current scenario. Further, it is necessary to consider the distance of the property from the end-user and suppliers. Also, a viable connectivity via road, rail or water transport is required for the smooth functioning of business.
3. Go for property inspection= There are terms like carpet area, built-up area, etc.; which should be clearly understood before going ahead so that seller does not mislead you. It would be good if you visit the property which you are planning to buy and verify all the real dimensions.
4. Social infrastructure= Just like location, the social infrastructure of the property is important. Carefully check if the location has shopping malls or restaurants nearby as more people are likely to visit the area in that case. Other services like lift, security, water drainage, electricity, etc.; must be carefully checked while finalising the property. These services not only help in the smooth operation of the business but also help in getting a high resale or rental value in the future.
5. Physical condition of the property= How and for what purpose the property was used before is important to know. It will give you an idea of wear and tear this property has gone through along with any repairs it might need. It will also give you an idea of resale value and the rental amount that you could earn in the future.
6. Estimated cost= In addition to the basic price of property, there are additional costs, like maintenance cost, building insurance cost, power backup, and other infrastructure fees that should also be considered.
7. Check market value= Before sealing the deal, it is important to carefully assess the current market rate in the chosen location. If you are looking for an office space to lease it out further, check the rental return in that area. If you have a plan to sell out the property after some time, don’t forget to check the expected resale value and price appreciation.
8. Verify insurance papers= Make sure that the builder from whom you are buying the property has a proper commercial building insurance. For instance, a factory & warehouse insurance is necessary if the property you are looking for is a factory or warehouse. This insurance policy will protect warehouse and building from various losses or damages, including both natural and man-made disasters.
However, if you buy only a certain portion of the building, like a floor etc.; you should buy a commercial building insurance on your own. This policy will cover your property against loss or damage due to lightning, fire, storm, cyclone, missile testing operations, etc. You can go further and insure your property against public liability, business interruption, machinery breakdown, etc.
As stated above, a commercial property entails heavy investment; therefore, it is necessary to protect your business from all losses so that it can reap benefits for you. A commercial building insurance is a right way to protect your business.
9. Go through legal conditions associated with a property= As per their requirement; every business would make use of the property. For instance, a lawyer would use the property as its office space, whereas, a factory or manufacturer owner would use it for commercial purpose. Thus, it is necessary to know the legal use for which the property can be put to use.
10. Check modification limitations= On the basis of the applicable laws properties have, certain restrictions are imposed on modification of interior and exterior of property. Be clear about your requirements and carefully study the laws in details.
11. Inspect the property for any litigation= A commercial property should be free from any old or current litigation. In the case a litigation is found on a property, a buyer can either re-negotiate or leave the deal.
In case of under-construction property, look at the developer’s record of accomplishment and risks associated with construction. In addition to the above, there are various other parameters, like the age of the property, scope for future expansion, etc.; which can also impact your choice. Though, you are buying a commercial property to earn profits, do not rush for finalising a deal. Commercial property demands extensive research and involves higher risk, therefore, seek legal and expert opinion to make the right decision. Investment in commercial property is not as easy as it seems. Make sure to carefully weigh all the pros and cons before zeroing in on one investment.
To avoid potential risks and sail smoothly, one should exercise due diligence before sealing the deal. For that, if you need to frequently visit the property and nearby location to find the issues in advance, go ahead.