FAQ: How to Buy a Commercial Property
Before buying a commercial or industrial property, make sure to determine whether you are buying to invest or for own use. The considerations are different.
There are many types of commercial properties such as (but not limited to the following): –
* Conservation properties
* Retail shops
* Office buildings
The tenure of the property (based on the land) are typically: –
* 60 to 99 years
* 999 and Freehold (rare)
The structures of these properties are: –
* Strata title
* Individual land title
How to evaluate a commercial property?
• Tenure of the property
• Rental yield
• Return of invested capital
• GST registration (goods and services tax)
• Calculation of property tax
• Management fees
• Interest rates of mortgage
• Types of commercial property
You may buy the property as individual, using a corporation’s name, or using your company’s name largely depending on how you want to use it.
Tenure would mean looking up on the freehold or leasehold terms and conditions to be able to fit and manage your budget better. Although leasehold properties come out to be cheaper, you need to review if the rental is able to cover the amount of the monthly mortgage including extra cash if possible. Rental income actually refers to this idea. Can a tenant’s rental cover the loan or is the place accessible enough that it would be feasible for rental income? GST registration is important. You need to know who is paying for the GST. Is it the buyer or the seller? Property tax refers to the tax percentage and total amount of tax you are going to pay for the property.
You also need to look into other related costs such as renovations or land improvements that you need to do and make the place look great for better markup later or higher income rental. Mortgage interest rates require a bit of surfing or survey across lending companies and banks. The usual amount that you may borrow is estimated 70% of the value of the property. The term of the loan is usually approved for 15 to 20 years. There is a big possibility that the rental cannot pay the total mortgage amount in the first few years. However, if you pick a good location that is accessible to schools, then you may command better income rental for your commercial property. There are several kinds of commercial property that you may want to consider evaluating their respective business potential before purchasing, such as warehouse, condo, residential, or B1 industrial properties.
You should be aware that using either corporation or company’s name requires much paperwork and longer time for processing. The usual documents are: –
• Company’s financial statements
a. profit and loss statement
b. balance sheet
c. audited report of financial accounts (for some banks and non audited for others),
• Bank account statements
• Certificate of Incorporation from ACRA
• Listing down of each director’s stake
• Copies if NRIC of all directors
• If Company income is insufficient, directors or stakeholders will be required to act as guarantor and submit their income documents and other forms of verification similar to a residential home loan application.
The financing and loans market is more fragmented than compared to the residential home loans market. In other words, there are more differences from case to case.
There is a huge differences between buying a commercial/industrial property under personal name or under company name.
There is also a difference between buying under a company name (as a special purpose vehicle) or buying under a company that does not have enough income. Some banks will accept director’s income from sources other than the company applying for the loan, some will only accept director’s income if it is in the form of a director fee or salary from the company applying for the commercial property loan.
Loan to value or loan quantum will also be subjected to whether the property is for own use or for investment. At this current moment, investment purposes have stricter criteria.
Credit officers within the banks will from time to time impose new rules and additional documentation checks. Often, credit officers may ask for additional documents if they wanted additional cross checks.
Contact us: –
For advice on a new home loan.
For refinancing advice.
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