How To Search for a Commercial Property
After researching and determining the general locations and types of properties you’re interested in, you can start looking at properties in your price range.
You can look at properties at, say, $100,000 more than your price range, as you may be able to negotiate that down, or the price may drop if the property doesn’t sell.
It’s unlikely you’ll find a property that you consider 100 per cent perfect; the aim is to find one that meets your satisfaction criteria as closely as possible.
How to Find a Property
There are three basic ways to find properties:
Via real estate websites
Through real estate agents
Through buyer’s agents
If you establish good relationships with real estate agents in regions you favour, they’ll contact you about potential properties.
When using websites such as realcommercial.com.au, you can speed up your search by using filters for location, budget and commercial property types.
The map view on these websites is a good way to choose a location – and also shows you how many similar properties are available in the area for sale.
It’s also worth checking Google’s satellite images to look for potential greenfield developments in the area and compare the Google Street View with the property advertisement photos.
Due diligence on each property can take time, so you must make a shortlist.
Narrowing your wish list to a few areas and the specific types of commercial property you’re interested in will help prevent you from overloading with properties. You can then choose a few to visit and make an offer on.
Note, in some states of Australia, it’s possible to go under contract without viewing a property in person because it will be subject to inspection and due diligence clauses.
After you enquire about a particular property, the selling agent will send you an information memorandum (IM).
Information Memorandums
An information memorandum (IM) is a document to advertise and provide key information about a property. It includes photos, property descriptions, tenant information, and investment and location highlights.
It also contains a disclaimer waiving responsibility for incorrect figures, so it's important to cross-check all figures as part of the due diligence process. Keep in mind, the selling agent may only show the positives and hide the negatives.
Pro Formas
A pro forma is a projection of a property's financials, not its actual financials. Sellers or agents may present pro formas in information memorandums to show potential future value, but they're not guaranteed.
It's best to create your own pro forma when analysing a property and not share it with the seller. Your pro forma should include physical or operational changes such as future renovation works, new tenants or higher rents.
Methods of Sale
The method of sale determines how offers are made, contract terms and order of due diligence and finance before going under contract. The selling agent informs potential buyers of the likely method of sale.
Expressions of Interest
Expressions of interest (EOI) aren’t binding, but you need to be aware that they can sometimes stipulate conditions that must be adhered to should the actual contract be signed.
On an EOI, you specify your buying entity, offer, deposit amount, and terms you would like in the contract, such as due diligence and settlement.
Fixed Price Listings
The fixed-price sales process is the most common method. Such listings may be indicated on websites by wording such as:
• ‘Price on application’
• ‘Offers above $1,200,000’
• ‘Contact agent’
• ‘High yielding, 7 per cent net yield, $1,200,000’
It's wise to check if properties advertised this way have previously failed to sell at auction or have been advertised for a long time.
Generally, a fixed-price listing produces a quick sale without the seller paying expensive auction costs or losing time on an expression of interest process. It also allows the seller to have the contract ready subject to finance, which allows for many potential buyers.
Off-Market Sales
Owners may choose to sell privately for various reasons, such as not wanting tenants, friends, family or neighbours to know the property is for sale. Private sales also reduce advertising costs and may result in a quicker sale if the agent has good contacts.
Building good relationships with agents may help find off-market properties, especially after making an unsuccessful offer on another property.
Auctions
Auctions are typically held for attractive properties such as those in the CBD or with national brand tenants, less common for cheaper properties. It is a high-risk method of buying and is best for knowledgeable investors.
The same level of due diligence, including getting unconditional finance approval and paying for valuations, should be done before making an offer at auction as with other methods.
Key Takeaways
At the end of the day, the best method will be the one that nets you the property you want at the price you’re willing to pay.
If you’re having trouble getting started or just can’t find what you’re looking for, consider enlisting help from a professional buyer’s agent specialising in commercial properties.
And, if you want to get ahead of the game and learn more about how I’ve helped thousands of investors successfully acquire commercial properties, check out our best-selling commercial property investing book or get in touch today.