One of the main lessons that has been increasingly evident to the Rawson Property Group’s commercial franchise division – and its franchisees – is that those people contemplating this type of investment must, if they plan to use bank or other borrowed finance, sort out the arrangement of the loan before they set about looking for a property and making offers.
All too often, says Tony Clarke, Managing Director of the Rawson Property Group, a perfectly good offer will fall through because the buyer has not had sufficient time to raise the required capital. The banks, he says, will in almost every case insist on a great deal of documentation and back-up data being provided and they may well then take their time before making a decision on the loan. This can result, and in some cases has resulted, in the seller accepting another offer and a good prospect falling away.
The big difference between a residential and a commercial property, adds Clarke, is that on a commercial property, the banks will expect the total repayment to be completed in ten to twelve years – half the time they allow for a residential property loan. In addition, whereas a bank may well advance 70 to 100% on a residential property, on a commercial property they are inclined to be far more cautious and to insist on a far bigger buyer’s deposit – anything from 30 to 80% of the purchase price. Furthermore, they will want to see the investor’s business plan and will expect the return on the commercial property to be at least 10 to 12%. This, says Clarke, is the accepted norm and there are very few exceptions to it.
These difficulties, he says, should not deter people from investing in commercial property. Now, he believes, is an excellent time to be doing just that because in certain carefully selected industrial nodes, tenant demand now outstrips supply.
“My advice to investors, therefore,” says Clarke, “is to consult with a good commercial agent or franchisee and find out where the high demand areas are – and then to be prepared to possibly pay slightly above the usual market valuation in order to acquire a property that is clearly a good investment. Here in the Rawson Property Group we have clients who own half a dozen or more such properties – and who, having been extremely careful in the selection of their tenants, are now making good money month after month.”
For further information contact the Rawson Property Group on (021) 658 7100.
