I’ve been asked time and time again, “How do I purchase commercial property?” Today, let’s start right at the beginning. For those who’ve been exploring NC Real Estate’s free content, you may have already taken our “What Type of Commercial Property Should You Buy Next” quiz. If not, I recommend starting there. This quiz will provide you with a risk profile and suggest the type of commercial property that matches your risk profile.
After completing the quiz, check the results at the bottom. There, you’ll find information on your next steps. If you’re uncertain about investing in commercial property, I recommend our free short course, “Transitioning to Commercial Property,” which will help you decide if commercial property is the right choice for you.
Goals
Assuming you’ve taken these steps, let’s move forward to purchasing commercial property. It all begins with setting clear goals. Define what you want to achieve with your commercial property investment. Do you seek higher yields and are willing to accept more risk, or are you more interested in lower yields and less risk? Your goals will also include the purchase price you’re willing to pay. I have created a goals spreadsheet to help you map out your next commercial property goal. You can access it through this link.
Search
Now that you know your preferred commercial property type and have your goals in mind, it’s time to search for properties. I recommend starting simple. Sign up for an account with Rightmove, one of the UK’s top property platforms. Once registered, navigate to the commercial property section and input your home postcode or hometown. Expanding your search radius to within 30 miles of your location is a great way to focus your search. Select the property type based on your quiz results and set a price range. For instance, you can go up to £50,000 to £100,000 above what the goals spreadsheet suggests. Ignore the square foot requirement, and then click “Find Properties.”
This straightforward process will generate a list of commercial properties that match your criteria. You can also create email alerts with your preferences, such as instant, daily, every three days, or every seven days, depending on your inbox setup.
Valuation
Once you have a list of potential properties, it’s time to evaluate their rental income potential. If a property has a tenant, you’ll see information about their rent. If it’s vacant, you can check similar properties in the area for rental rates and subtract 10% to 15% from that rate to estimate your potential income.
Now, let’s calculate the yield. Divide the estimated rental income by the purchase price suggested by your goals spreadsheet. If it aligns with your financial objectives, you have a potential property worth exploring further.
You can also refer to my podcast on commercial property valuations, which offers additional insights and access to a useful spreadsheet for property analysis.
If a property seems promising, it’s time to make an offer. Make sure your offer is lower than your maximum budget, and provide evidence of your ability to complete the purchase swiftly. Share your funding sources, such as your SAS if it’s involved, and provide details about your solicitors.
Keep in mind that it might take several offers—sometimes 10 to 30—before you secure a property. Don’t be discouraged if your first offer is rejected; persistence is key.
Finance
Once your offer is accepted, you’ll receive heads of terms from the agent, which will also be shared with your solicitor. At this stage, ensure your solicitor is instructed to initiate the conveyancing process. You should also start looking for financing if required.
To find finance, consider using a commercial broker and refer to my podcast on finding finance for additional guidance.
Your solicitor will guide you through the conveyancing process, highlighting potential risks and assisting with decision-making. Listen to their advice, as they play a crucial role in your property purchase.
Conclusion
With the purchase completed, you’ve successfully gone through the step-by-step process of acquiring a commercial property. Remember, keep it simple and stay focused on your goals. Buying commercial property should be as straightforward as buying residential property, and with the right approach, you can achieve your investment objectives.
