Buying or selling commercial property.
Commercial property is bought either as an investment (rent it out to other commercial occupiers) or from which to operate your business. Different factors apply whether you are an occupier or an investor.
Investor buyers- what to look out for.
Rental returns are dependent on supply and demand. If the property you buy is at risk of new supply coming on stream in your area rentals may be under pressure. Commercial property is dependent on "use' which in turn is limited by the planning permission for the property and the planning zoning for the area. It is critical that you check all of these before you buy.
Capital appreciation will depend on the demand for property in the area matched by amount of supply. Again, if there is potential for new supply nearby that will dictate the capital appreciation which will be governed by the cost of developing. Overlying all of these factors is the interst rates on borrowings and the state of the economy both locally and internationally.
Commercial property also comes with the factor of VAT which applies to the purchase price and any rent charged if investment. VAT applies to all commercial properties which are in the VAT net. This is a very technical tax and you do need expert tax advice on this subject.
Commercial property is subject to Stamp Duty at 6% on the ex Vat purchase price. This brings the total cost of purchase (including legal, survey, registration and valuers fees) up to approximately 8.5% of the purchase price.uy the
Occupier buyers- what to look out for.
If you are buying a commercial building you need to consider;
Do you buy the building in your personal name or the name of your company. If you buy it in your personal name you cannot us company funds unless you either take these out of your company as drawings or you borrow or use personal funds. If you purchase in your personal name you must create a lease between you as the owner and the company occupying. The lease must be on arms length commercial terms. The rent must be at market rates with standard lease terms. If you do not keep this at arms length you are at risk of revenue imposing tax.
it is vital that the building has planning permission for the use you intend. You may also have to check if there are any use restrictions in the Head Lease if you are buying in an industrial estate. Use may always be changed through a planning application but it is not possible to change the use outside the zoning for the buildging. You should have an architect advise on planning before you buy.
As you buy it is likely that some day you will want to sell on the building as you outgrow it or retire. Just because the building really suited your purpose it may not suit anyone else. Factor this into your thinking when you value the building at the outset. If you overpay for a building that suits your business now that may not last and when you sell you may take a lower price to offload.