10 things to keep in mind when investing in commercial property

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(iStock)
(iStock)

Cape Town - When considering investing in commercial property, there are ten things to keep in mind, according to Christo Botes, executive director at Business Partners.

Location

Certain areas have been more affected by the economic downturn, which is why location is imperative. Property values in metropolitan areas are more favourable as they are more resilient to economic fluctuations.

Affordability

One of the biggest mistakes that inexperienced property investors make, is to fixate on the bond-repayment figure alone. Rates, levies, utilities, maintenance and security costs all have to be factored in.

It is also very important to test various scenarios to see if the investment is still affordable when interest rates or other costs increase.

Remember not to take the municipal rates that the previous owner has been paying as a given. The municipality will adjust the rates according to the sales price as you register the purchase of the property.

Deposit

The bigger the deposit, the lower bond repayments will be. However, this can be a difficult calculation for business owners.

They must consider the opportunity cost of taking the cash for the deposit out of the business. It may be more lucrative to keep the money in the business compared to the savings gained from having an increased deposit.

The cost and supply of utilities

Electricity and water, once a given in nearly all formal properties in SA, is no longer to be taken for granted.

Conduct a careful study of the reliability of the supply, its costs and the availability of backup systems.

The cost of maintenance

It is easy to underestimate the cost of maintenance, especially in old buildings that may be seen as a bargain.

Be sure to do an accurate survey of the state of repair of the building.

The cost of security

The buyer may need to invest a large once-off installation such as an electric fence or add in the ongoing cost of around-the-clock security if the property is particularly vulnerable to crime.

Access

Ease of access can be key to making a property investment worthwhile. Consider issues such as road infrastructure, as well as parking, congestion and the proximity of public transport.

Defects

Calculating the ongoing maintenance of a building is one thing, but ensuring that there are no hidden defects in the property is another element that must not be neglected.

Make a careful study of the water and electricity connections to the property, the state of the building itself, the infrastructure such as air conditioning, and nowadays, the fibre connections and cell phone coverage.

Approved building plans

Many investors have had the misfortune of buying a property, only to be slapped with a demolition order because the seller had built without the requisite approval.

Therefore, it is advisable to request the approved building plans of the property before it is bought.

Sectional title

If an investment is part of a sectional-title scheme, it adds another layer of due diligence.

Make sure the body corporate that runs the complex is well managed and healthy. It is also vital to view the financials of the body corporate.

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