The Top 10 Costs of Commercial Real Estate Investing: A Comprehensive Guide
by Mish Daniel | Free Information
When it comes to commercial real estate investing, there are many costs to consider. But what are they?
Knowing all the costs of commercial real estate investing can help you make informed decisions, budget for future investments and maximise your return on investment. Familiarising yourself with fees such as taxes, insurance, repairs, or maintenance will ensure long-term financial success.
Mish Daniel, the founder and director here at Revolve Commercial, shared her extensive knowledge of the commercial real estate industry in our recent video. With over 35 years of experience, Mish is passionate about helping others make smart investments in commercial properties. With the help of her expert advice, you can ensure your success in the world of commercial real estate.
Listen to the full conversation below, or keep reading. 💡
Here are the top ten costs to look out for when investing in commercial real estate:
Commercial Property Deposit
It’s important to have a deposit ready for 20-35% of the purchase price.
Even though high-net-worth individuals can secure higher loans with offers of 65-80% of the purchase price.
To calculate the budget: Take the deposit and divide it by the loan-to-value ratio (LVR) plus 5% for overall costs.
For example: With a deposit of $400,000 and a loan of 35%, the budget would be around $1,148,000.
It’s important to remember that these are rough estimates, and you must work backwards by determining how much cash you have.
Stamp duty is an important factor to consider when buying a commercial property.
The amount of stamp duty you need to pay can vary greatly depending on the state you are buying in. In some states, such as Canberra and South Australia, there is no stamp duty, but other taxes may be levied based on the value of your property.
The amount of stamp duty typically ranges from 1.5% to 3.5% of the purchase value, and it is important to consider this when budgeting for your commercial property purchase.
Legal and Conveyancing Fees
Having legal and conveyancing representation can save you a significant amount of money in the long run.
Working closely with your solicitor is crucial to ensure that they thoroughly review all checks and balances. And must be familiar with the laws and regulations in the state where the property is being conveyed.
The solicitor performs contract reviews, provides legal advice, and conducts legal searches to identify any taxes or fees that may affect your bottom line and cash flow.
The cost can range anywhere from $1,500 to $3,500, depending on the size of the property, the number of leases, and the complexity of the acquisition.
If you are purchasing a multi-tenanted property with multiple leases, it is important to have your legal team review each lease in detail to ensure that you are getting what you are paying for.
There may be hidden clauses in the leases that could cause issues down the line, and having a legal team review these leases can help avoid these problems.
Building and Pest Inspections
Once you’re on contract, it’s important to conduct building inspections. This includes a building walk-through with an inspector from a reputable company familiar with commercial structures.
The inspector will review the property’s general condition, identify defects, estimate the cost of necessary repairs and provide you with an inspection report.
It’s important to note that building and pest inspections don’t cover electrical or plumbing systems. If the inspector sees any issues (like dripping pipes or old electrical boards), they can suggest a building inspector or an electrical professional to assess the situation.
The cost can vary widely, from $450 to $4,000, depending on the size and complexity of the building and the number of tenants.
Body Corporate Inspection Report
A reputable strata specialist must perform a body corporate inspection report to review the property’s health.
The report typically includes:
- Checking the strata minutes and financial reports
- Reviewing the health of the sinking and admin funds
- Identifying any historical problems or upcoming expenses
The cost is between $350 to $500, depending on the size of the property.
The buyer should negotiate any recovery plan before purchasing the property.
It’s best to speak to business building insurers as soon as a contract is signed on a property to take liability for the insurance.
Protecting the property and business from damage or loss during the contract of sale is important.
The cost varies by state and is subject to the size of the property. It can range up to $150 and typically covers 12 months
Getting the right information and costs from a reputable insurer is crucial.
If you’re getting the finance on the property – you’ll need to pay for a valuation required by the lender.
The ideal valuer is someone you can collaborate with, and, in most cases, your lender will arrange for the valuation with a well-known valuer.
You should give them as much information as possible and access to agents to help them arrive at an accurate valuation.
Depending on the property size, costs range from $900 to $3500.
Goods and Services Tax (GST)
Goods and Services Tax (GST) is not generally applied to the sale of a property.
It depends on the status of the property as either tenanted or vacant.
If the property is tenanted and there’s an operating business, it will be exempt from GST.
If it is vacant, you will pay GST at 10% to the negotiated price of the property.
It can be claimed back during the next GST cycle but will not immediately be in the buyer’s pocket.
Plans and Surveys
Surveys aren’t mandatory, but requesting them is always a good idea because you can use them when negotiating later on.
There are two different types of surveys:
Boundary surveys – a relatively low-cost survey that checks to see if the property infringes on someone else’s land or vice versa. This survey also looks at the property’s size and footprint.
Internal Survey – Examines every single room on the property. The cost is generally between $500 to $3,000, depending on the State and the type of surveys you request.
Also, ensure you get any plans for the property because you can use them to make informed decisions down the line.
For instance, if you decide to sell the property in 10 years, having the plans on hand can make any future changes easier. It will also be useful for any future work you may need to do.
Plumbing & Electrical
If you spot irregularities during the inspection, it is best to investigate further, such as electrical or plumbing issues.
When the due diligence process is complete, the findings can be included and used to negotiate with the vendor for necessary repairs, corrections, or price reductions.
Electrical and plumbing inspections typically cost around $250 to $300.
These are the usual purchasing costs of commercial real estate investing.
Understanding these fees is key to making an informed decision about your investment.
If you have any questions – book a no obligation 15-minute chat with one of our experts at Revolve Commercial. In this call, we’ll address your questions and map out what your potential next steps are to growing your wealth portfolio.
📞 Don’t wait – book your free call today.