Purchasing a commercial space, or any kind of real estate property for that matter, is one of the most daunting transactions that any individual could possibly experience. Buying an office space (or building) is definitely not the same as buying a new pair of pants from a favorite shopping center. There are many factors, conditions and property regulations that should be considered before sealing the deal.
Location, amenities, and price are just some of the main factors that are worth considering before deciding to purchase a commercial space. Your personal goals should be considered too - are you planning to use the space for your own business, or are you just going to have it leased to a tenant? Either way, you need to make sure that the property you get will prove to be the right investment. Below are 3 more factors to consider:
The Building Condition Assessment
Any aspiring buyer or investor needs to observe due diligence in the selection and purchase of real properties. Aside from making sure that the property is in good condition and that the building is made with standard materials, the property’s history is also reviewed in this process. This includes checking if whether or not the property is encumbered (or is currently subject to a lien), or if the previous owner used it as collateral of a still unpaid loan.
Any information that is uncovered in the process can help you make a better decision if whether or not a particular commercial space is worth it. It will also prepare you for any additional expenses (in case the property would need improvements) and other types of obligations.
In Canada, there are banks and contractors that can assist real estate buyers in the process of the Building Condition Assessment. A Building Condition Assessment is usually required by certain banks and lenders/real estate financiers for properties that are valued over $2.5 million.
The assessment process usually takes place in a period of 30 days. Before that period starts, you should make sure that all the necessary documents are in. The seller of the property should cooperate too - since the bulk of the documents will also come from their side (this would include insurance policies, tenant contracts, maintenance, tax declarations and more). If the seller is quite reluctant to provide the necessary documents, then consider that as a red flag. He/she might be trying to cover up a defect, encumbrance or a hidden obligation that concerns the property.
Layout, Renovation and Other Costs For Improvement (Plus Taxes)
Purchasing a commercial space by itself will certainly cost you thousands, if not millions of dollars, but that is not the only price tag that you should worry about. You will still need a budget for furnishing the property, making necessary renovations, and the cost of labor for such improvements, plus property taxes (which could differ by area or location). These additional expenses should be noted and estimated/calculated ahead so you will be prepared of the financial obligations that comes with the purchase.
Aside from budget preparation, you need to find reliable builders or contractors (electrical, plumbing, and many others) to do the necessary renovations and improvements to the property. Make sure you go with a reputable name, then perform a credit/background check on them whenever possible.
Once you find a reliable contractor, make sure that you are hands-on when it comes to planning and setting the layout of the commercial space. You should cooperate with them to ensure that the design is operationally efficient for your employees/tenants.
Last but not the least is the issue of finances. Don’t just settle with just one bank or lender, try to ask and shop around for more financiers then compare and contrast which of them offers a more reasonable interest rate and payment scheme.
In line with this, you must prepare your financial statements and other supporting documents that are usually required by banks and lenders before approving a loan. This means that you need to allot a considerable amount of time to comply and process any document for the loan itself, including business papers and licenses. In many cases, an outsourced bookkeeping service such as Enkel can help with this process.
Another thing to consider is the safety of the property. Although this will be properly reviewed during the Building Condition Assessment, it is also best to check it out personally. Make sure that the property is equipped with emergency fire hydrants, fire exits, alarm bells and better yet, first-aid supplies. You might also want to check out the amenities first - is the parking space large enough for your employees/future tenants? Are there offices and shops near the property that can be greatly beneficial to your business or tenants? Are there enough comfort rooms and recreation areas? Is the property’s location easily accessible from the main road? All these should be reviewed and observed before deciding to buy the space.
We would like to thank Gemma Reeves from Find My Workspace for her expert insights provided in this guest article. If you have any questions or comments, please share them below.
Enkel offers professional bookkeeping services for Vancouver, Edmonton, Calgary, and Toronto based businesses. Reach out today to learn how our team can help with a wide variety of bookkeeping and accounting related tasks!