Buying commercial property sounds easy in theory. Just find a building that looks good, suits your requirements and isn’t priced too high – then put in an offer and wait for the sale to go through. You might even say it sounds as simple as playing Monopoly.
Unfortunately, owning your own office space isn’t quite that easy.
If you’re a first-time commercial property buyer, there are a few important things you’ll need to know. Let’s take you through them step by step.
Commercial property bonds – a whole new game
When first-time commercial property buyers enter the market, they often have a homeowner’s approach to loans and repayments. One of the biggest surprises when buying a commercial property is that the repayment period is a lot shorter than a residential bond.
Most commercial buildings will need to be repaid over 5-10 years, unlike the 20-30 year period allowed for most residential properties. For property buyers, this means higher monthly payments – since both the purchase price and annual interest rate will be higher than they would be on a residential home loan.
Buying a commercial property means you’re buying a business
Another difference between buying a home and buying office space is that the property will need to run at a profit – or at least break even – if it’s going to be a good investment.
- Every commercial building needs to maintain minimum occupancy rates, with reliable tenants that provide a healthy rental income.
- The rental income will be used to repay the financing costs on the building – and if there’s a shortfall, the owner will have to pay it out of pocket.
On a commercial building, that type of shortfall could come to tens or even hundreds of thousands of Rand a month.
- When applying for financing to purchase a commercial property, you’ll need to provide in-depth financials on the building and its tenants.
- You’ll also need to show that you’re able to cover the cost of repayments even if rentals start to lag.
For this reason, you should count on financing 50% or less of the building cost through a lender, with the balance being paid in cash.
When the stakes are high, good advice is crucial
If you’re in the market to buy a commercial property, there’s a lot of planning that will need to be done. The good news is, we’re here to guide you every step of the way.
Contact us today with any questions you may have about buying a commercial property. Our team of area specialists is on hand to ensure a successful property investment.
