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How to buy a commercial property

Finding your property

www.spotit.co.nz helps you to understand the current commercial property market. If you are intending to buy a commercial property, It is wise to contact a local real estate agent specialising in commercial property.

Obtaining information on the property

In general, you need to take care of these attributes when you're considering a commercial property:

Land area, the bigger the better
location and sitting
Market rentals, good to calculate and compare the rental figure per square metre
Traffic flow
Carparking
Stud height
New developments in the area
Prestige factor
The return from the property, the basis of any successful purchase of a commercial property is the return from the property. The value of the lease is therefore paramount. You should check the term of the existing lease and the financial strength of the tenant. Where the tenant is a company, you should check whether any personal guarantee has been given by a representative of the company. For information on commercial leases generally, see How to enter into a commercial lease.

Here is a reasonably quick and simple method to assess deals offered to you. You shall review the value using a likely Cap rate. You can calculate it by the Net income divided by the appropriate Cap rate. You shall also calculate the cost per square metre at the asking price. This site automatically generate these 2 important figures after the listing price (in green).
If you find a suitable property you should have a valuation prepared for it. You should also obtain a Land Information Memorandum (LIM) on the property from your local council. These documents will provide you with much information important in assessing the property’s value and potential uses.
The LIM will include, among other things, any special characteristics, the permitted uses of the land, and any relevant consents or notices issued by the council.

What should be the ownership vehicle for the purchase?

You will need to decide what type of entity you should use to buy the property. The options include:

buying as an individual
buying through a company
buying through a trust

Your lawyer and accountant will help you in deciding on the best ownership vehicle for your situation.

Making an offer

Before you make any offer on the property you should discuss it with your lawyer.
If this is not practicable, you should make the offer conditional on your lawyer giving his or her approval that the title to the property is in order, and also his or her approval of zoning matters and of any matters disclosed by the Land Information Memorandum obtained from the council.
Your offer should also be subject to your approval of the terms and conditions of all leases and, where appropriate, to your borrowing being approved on terms satisfactory to you.

More to consider on GST

Commercail property investments differs signifcantly from residential property investment with respect to GST.
The sale of a tenanted commercial property is classed as 'a going concern' and GST is not payable nor claimable on the transaction provided both parties are registered for GST and agree the transaction will be ZERO RATED. The sale of a going concern involves the transfer of a taxable activity between two registered parties where the purchaser intends to carry on the taxable activity. The documentation is critical on 'Purchase Price'. The 1/9th of the sale price differ significantly from 'Plus GST' to 'Inclusive GST if any'.

You need a Lawyer

A lawyer will ensure that all documents are correct and will generally protect your interests. As well as checking the LIM, your lawyer will check the certificate of title to ensure that any prior mortgages are discharged and that any easements are correctly established. Your lawyer will also advise you on relevant tax matters such as whether the purchase price includes or excludes GST.

Parking, Car park for Sale or Lease

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