Commercial property auctions are getting more and more popular as time goes. Auctions raise the chances of buying the property you have been wanting to buy for so many years. Being informed across every aspect of purchasing commercial real estate property can be more important now than ever. However, before you buy at auctions, here are a few important things you need to know.
Know exactly what you want
It is important to create a buyer’s brief. Otherwise, you will be looking everywhere at different types of properties and finding none that meets your needs. You should identify the property you want – whether it is retail, industrial or medical. You need to know the right property that will work for you.
Understand what the property class means
It might be good to have a check in hand ready to purchase the property on the spot should the property auction go in your favor. However, the loan to value ratios varies depending on the property class you are buying. Do not go into these things before doing your research. It is important to understand the nature of the property class that you are purchasing and how the bank views it. This is because commercial properties vary widely. For instance, if you are buying a petrol station, and let’s say it is 25 years old then you may get a 50% loan of the purchase price. This is a problem if you thought you could get a loan of 80% to buy a property from a commercial property sale platform.
Carry out due diligence
Having a pest and building inspection report done is highly recommended. It is important to know whether the building is in the right structural condition, if renovations are needed or if the building contains materials that should be removed such as asbestos.
Do not be skimpy on due diligence
In all cases, pre-auction due diligence is very important. It is even more important when a buyer intends to use their self-managed superannuation fund. This is why it is important to carry out due diligence especially in future vacancies. This is because vacancy becomes the biggest risk factor when you are using your SMSF.
Understand the GST aspect
This is a big difference between purchasing a residential and commercial property. You should understand your tax liabilities with GST. If it is sold as a concern with the tenant, you will not be responsible to incur the cost of GST in addition to the purchase price. On the other hand, if you purchase a vacant commercial property, you will pay GST before settling which is excluded from the purchase price. You can claim that back depending on the structure of your tax. However, you should ensure that the structure exists in the first place.
Seek expert advice
When buying commercial property auctions, it is crucial to use a professional real estate agent to help you lower the risk of losing money. While you will pay some commission to your agent, you will be able to save a lot of money in the process.
