It’s exciting to invest in an older commercial property, whether for fixing up to resell or to invest in over time to see a business grow. But with an older property’s possible gains there are also a number of risk factors to consider. Following the previous economic crisis, buyers are more cautious now, even with more confidence in the market as a whole, according to Forbes.
Astute buyers should do their best to mitigate risks and stay in the know of possible threats against their investment property, no matter the age. A couple of good steps to take are to employ an experienced conveyancer to seek out and assess risks, and to invest in commercial property insurance to protect against certain risks.
Here are a few of the most common risks to look out for when looking into buying an older commercial property.
A few termites here and there, and a bit of mold growing along the edges of the ceiling, may not be cause for a big panic. Taking care of a few small things is expected upfront. But owners, or potential owners, should really look into issues related to the foundation of a building.
Foundation issues could end up costing owners tens of thousands of dollars to repair. Have a professional building and pest inspection taken care of before the commercial property is finished, before any contracts are signed. Any and all areas of concern can be discovered and a plan can be administered by a conveyancer to take care of possible costly issues.
Part of a tax benefit building owners get is due in part to depreciation. This is a certain kind of tax deduction that offers owners the opportunity to legally claim their property’s depreciation in value as years go by. The older the property, the lower the depreciation benefits. Over time this means that the investment is less profitable overall.
This can be avoided by understanding exactly how much can be afforded when looking to buy a commercial property. Owners can also consider investing in properties that have been renovated at some point, in some way, as these typically come with higher depreciation benefits.
It’s Hard To Find Tenants
Simply put, it can be a burden to let out the suites within a commercial property. Commercial properties can have longer leases, from three to 10 years or even longer, it usually takes a lot longer to find tenants for these properties. The owner is expected to cover all the costs during the period in which the different offices or suites are vacant, and this can take away from the investment entirely.
The terms for a commercial lease are pretty complicated compared to a residential lease. Commercial tenants do have multiple options when it comes to lease terms including a gross lease, double net, and tripled net, but this can cause plenty of confusion and end up eating away from the overall investment.
About Newman Crane & Associates Insurance
Deciding what coverage you need and what limits and deductibles make the most sense can be tricky. Since 1965, Newman Crane & Associates Insurance has been helping Central Floridians make sense of their options and make the smartest choices for their circumstances. Whether you need Warehouse Insurance or any other type of business or personal coverage, we encourage you to contact our friendly, experienced, and capable team today. Call us at (407) 859-3691 for a consultation.