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Commercial considerations

Whether you want to own your practice premises, or start building an investment portfolio, buying a commercial property can deliver financial benefits. However, there are a few things you should know to get it right. 

There can be a number of key benefits to buying a commercial property for your practice. You’ll escape the rent trap and wave goodbye to restrictive lease terms. Plus, as the owner of your practice premises, you’ll retain control over the building and the long-term future of your practice.

Dean Crozier, Chief Executive Officer of Health Project Services, explains that owning your practice premises can also create an income stream for your retirement.

“If you decide to sell the practice, you can retain ownership of the property and receive a rental income stream,” he says. “This is popular for retiring practitioners who want to secure a stable income.”

If the property increases in value over the time, you may also pocket any capital gains. Depending on the building, Crozier says there may be an opportunity to lease any excess space to another business and generate passive income.

However, there are a few drawbacks of property ownership too. You’ll need to cover mortgage repayments, maintenance and repair costs.

Crozier also notes that while you’ll be free to renovate the building, “any investment you put into the premises should be adding value, which will be returned when you sell the property”.

Getting it right

It’s vital to select the right commercial premises for your practice. Pay attention to the building’s proximity to transport, ensure your services are the right fit for the local demographic, and identify nearby competitors.

“It’s important to review existing and future competition in the market,” says Crozier. “Is the area under-supplied or over-saturated? This can have a significant impact on the success of your business.”

You should also understand how the area is likely to grow over the next five to 10 years, and whether the property will allow your practice to expand.

Be sure not to overlook the smaller details such as the availability of staff and patient parking, any challenges your patients may have in accessing the building, and whether the building is zoned appropriately for your intended use.

Crozier also explains that it’s important to ensure the property is structurally sound before purchasing. “Conduct a building inspection to identify any potential costs, and be realistic with budgets and requirements—don’t over-capitalise on improvements.

“You will also want to look at building services like air conditioning, lifts and fire alarm systems to ensure they are fit for purpose and have been serviced regularly as they can be very expensive to replace. Engage a quality project manager to conduct a thorough audit.”

You might also want to engage a property advisor to help make the purchasing process easier, particularly if you’re busy working in an existing practice.

“A property advisor can be a sounding board for the buyer,” Crozier explains. “This is typically a very stressful decision for buyers, and extra support can help reduce the stress. An acquisition adviser helps to remove the emotion from the negotiation process, and selling agents tend to enter serious negotiations sooner with a property advisor.”

However, Crozier warns not to confuse a property advisor with a residential buyer’s agent.

“A property advisor is qualified to manage the due diligence process of a commercial building, and understands what will be required to have the building fit for purpose,” he says.     

Buying a commercial property as an investment

Owning your own practice premises is just one option. You can also consider buying a residential or commercial property as an investment.

Commercial properties can have a few advantages over a residential property investment. Crozier explains that rental return is typically greater on a commercial property, and leases on commercial properties are generally longer than residential leases. This enables you to build a long-term relationship with your tenant and help to create more stability.

Crozier also mentions that commercial leases can include annual rent reviews and, in some cases, tenants may be asked to pay for outgoings such as rates. This will help to keep your costs down and improve investment return. This is worth noting if you are planning on purchasing your practice premises and then retaining the property as an investment come retirement.

All this being said, any benefits you generate from a commercial property investment depend on buying the right building. Research is vital here. Just as if you were planning to run your own practice out of the building, you should understand the tenant demand in your selected location, and how the area is expected to grow over the next five to 10 years.

“Also consider the age and condition of the property and whether it will require significant capital investment,” says Crozier. “And does the site have potential for future development or potential resale to increase value?”

Crozier also points to the importance of zoning, parking, accessibility and street profile when considering a commercial investment property. 

“Properties with zoning that allows more uses will appeal to more tenants. Some zone restrictions can affect values and limit the number of potential tenants and/or buyers/investors,” he says.

“Does the property include parking, and if so, how many parking spaces? This can make a difference when attracting tenants. Does the property have disabled access? Does the property have a strong street profile and high visibility?”

But the golden rule, whether you’re buying a commercial property as your practice or as an investment, is to know your limit, be realistic, and don’t over-capitalise on renovations that don’t add value to the building.

 

Do you want to know more about purchasing commercial property? Click here to visit our page on commercial property loans, or call us on 1300 160 160.

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      BOQ Specialist is not offering financial, tax or legal advice. You should obtain independent financial, tax and legal advice as appropriate.