adpapa Editor
3 January 2021
If you are in the market to purchase Perth commercial property, then the following proven methods will help you identify investments that have the best opportunity to be profitable over both the medium and long term.
This expert advice kicks off by discussing due diligence, as it’s a process that every property investor needs to go through.
Pre-Purchase Due Diligence
Just like you would make some inquiries before purchasing residential property there are some common-sense factors that need to be ticked off before you choose Perth commercial property to purchase.
Engage a lawyer to undertake all relevant searches with regards the title to any Perth commercial property you intend purchasing. Searches including, however not limited to –
City, state or federal plans to widen roads, resume land or otherwise impact on the property
Checking for any impediments or covenants applying to the property, such as a historical listing or a restricted-use zoning
Confirming that the identified vendor has clear legal title to the property, without any government or private liens, or civil litigation in process
Define your goals: Income, Growth, or Both
Make sure that you have a clear idea in your mind as to what you want to achieve by buying a Perth commercial property.
Income
If you want immediate and regular income, then ensure you choose a property that is currently tenanted by a business, and/or –
The resident tenant is stable and has a proven track record of paying their rent on time
If this tenant vacates, what would be the expected ‘down-time’ before a suitable replacement tenant is found, signed up and installed? There are several online services who will give you* average occupancy and vacancy rates for Perth commercial property as defined by zip.
Has current and reliable assessments available as to the short and mid-term prospects for leasing rate increases. In other words, once the current lease expires, is this Perth commercial property well placed to support a rental increase?
Has a positive cash flow, and is expected to maintain that benefit. Make sure you do a ‘cash in – cash out’ calculation to ensure that you are likely outgoings will not exceed the rental income. An accountant who is familiar with commercial investments should be used if you have any doubts about your ability to calculate cash flow and profitability.
Has no obvious capital expenses looming. For example check to see that any lifts are in good repair and there are no pest infestations or roof leaks. A building inspector can be used to assess the property, and their fees are tax deductible if you make a purchase. Also, the tenant(s) in residence will usually be only too happy to identify issues for you.
*Be prepared for any of these property database providers to either charge you a membership fee, or at least have you sign up for a free trial. Keep in mind that any expenses you incur when researching a Perth commercial property purchase can be tax deductible in normal circumstances.
Growth
Usually, however not always, investors purchasing Perth commercial property for asset growth have a mid to long term stance. In other words, growth investors generally look at least a decade down the track when choosing a property.
While a current commercial tenant is of course a welcome treat, the growth investor is more concerned with the increase in asset value appreciation over time. Here are some of the critical factors that need to be ticked off when analysing the growth potential of Perth commercial property.
Location, Location
It is a cornerstone of the residential world, and it applies just as well for Perth commercial property. Here are some pointers to short-listing sites with sound growth potential –
Is it in a successful commercial location right now? If so, all well and good however dig into things a bit more and see what commercial development is planned for the area in the next five to ten years. Will this property still be in a prime location? Will transport corridors keep up with demand, and is the local population increasing or on the wane?
What, if anything, are the bigger players doing in the area? Pay a visit to the local planning office, or their public website, and see what applications are in the approval process. If a massive mall is planned nearby – will this affect the property you’re looking at, and will that impact be positive or negative?
Be aware that companies (such as global fast-food chains) are typically quite discreet when lodging development applications – using anonymous holding companies for example. The best tip is to walk the district and speak to local traders, taxi drivers and the like as they typically have the best information first.
Is Perth commercial property the Best Use of Your Funds?
Lastly, a savvy investor has to take into account all the alternative investment options and confirm that property is the best way to go. Patches of real earth, and bricks and mortar have a strong attraction as they are tangible objects, however at the end of the day if stocks or the money market will grow your capital more efficiently – then you must put all emotion aside and choose them instead.
Once you know all there is to know about investing in Perth commercial property, then it is wise to sit down and see how the income or growth potential (or both) stacks up with the alternatives.
Having noted that caution about considering alternative investments, it is well worth noting that Australian millionaires regard property as the best investment choice for the medium to long term. So if Perth commercial property appeals to you, and you’ve done your homework – then go for it!
