Five important points to consider when buying commercial property...
Some say buying and investing in commercial and industrial property is a sure thing, but before you rush to buy factories, office blocks and retail outlets, Len Pears, director of Quagga Property Buyers, suggests you consider:
1. Upfront and ongoing costs
When buying an industrial or commercial property you will have to pay VAT or transfer duty on the purchase price. What you will have to pay depends on the seller’s VAT status. If, as purchaser, you buy a vacant property into a Vat Vendor Company, Close Corporation (CC) or Trust, you can claim back the VAT or transfer duty from the Receiver of Revenue in your next VAT cycle. If you purchase the property with an existing tenant into a Vat Vendor Company, CC or Trust, the VAT, if applicable, can be zero rated and transfer duty does not apply.
On an ongoing basis include municipal rates and taxes in your budget. If the property is part of a commercial and industrial sectional title complex, you will also have to pay monthly levies.
2. Location convenience
Locality to the majority of your customers is key. It is also important to consider easy access to major routes.
3. Business growth potential
We always advise clients not to buy premises either too big or too small, but rather start with just enough space for your current business needs, with room for between 20% and 30% initial growth.
4. Area zoning
Buy a property that is zoned correctly: commercial zoning for offices, industrial zoning for factories and retail zoning for shops and retail outlets.
There are costs and other factors to consider when attempting to have a property rezoned.
5. Avoid placing a tenant with their personal name
If you buy a commercial or industrial property for the purpose of investment, avoid placing a tenant with their personal name and rather ensure it is a CC, Company or Trust. If you need to evict a tenant it is easier if they are a CC, Company or Trust than an individual person. When placing a CC, Company or Trust as a tenant ensure personal surety is given by the directors, members or trustees respectively.
It is important, especially with commercial and industrial property, to work with a qualified agent.