Investing in commercial real estate | 2022 Guide
What is commercial real estate and what do you need to know and prepare for so that the investment brings profit?
What is commercial real estate?
There is no definition of commercial real estate in the law. Properties freedom mentor apprentice program reviews that are characterized by the fact that they are uninhabited to business activities are commonly considered to be such. They can be divided into commercial and service premises. Individual offices, entire buildings (including office buildings, shopping malls, and hotels), and warehouses.
There are two ways to invest in commercial real estate:
- By purchasing ready-made premises with a tenant and a signed contract. This is a very convenient option as we don’t waste time looking for a tenant. At this stage, it is already known whether the operating business brings profits and what is the profitability of the premises. The new owner only has to confront the franchise holder to agree on further lease terms.
- Through the purchase of empty business premises and independent commercialization. This means that to obtain satisfactory profits, first of all you need to choose a property with a good location. Secondly, you need to quickly rent it for a lucrative business.
Investing in Rudn enclave Islamabad single service premises or offices does not require such financial outlays as the purchase of entire buildings. Therefore, we will look at the opportunities and threats offered by investing capital in single facilities that are within the reach of many Poles.
How to calculate the profitability of an investment in commercial premises?
As investment experts say that real estate intended for service activities can bring much higher and more stable profits than renting a flat. They estimate that the rate of return is in the range of 7-10%, and the capital invested returns on average after 10-15 years. How is this counted?
As a general rule, the profitability of a property is the annual net rental income divided by its value times 100. Income is counted as income minus costs. The income is the base rent (a fixed amount, indexed by the level of inflation – if there is such an annotation in the contract) and variable (i.e. fees for a community or housing cooperative). For the owner, the costs are rent for the community or cooperative, property tax, and land tax. In turn, after how many years the invested capital will return, we will calculate by dividing the invested funds by the annual rental income.
How to get a loan for commercial real estate?
When it turns out that we have insufficient funds to buy a property, then taking a loan should be considered. It is generally believed that obtaining a loan for service premises is much more difficult, however, if the future investor secures the loan with another property and has a stable income, there should be no big problems with obtaining a loan. It should also be taken into account that banks are reluctant to credit the purchase of business premises by natural persons, but it is not impossible.
In addition to standard documents, the bank requires the potential owner to submit a business plan. Specialists will assess the potential of the premises and the profitability of the investment, and on this basis, they will decide how much financing we will get. We will be able to finance up to 80% of the property value from the loan. Banks consider applications for a mortgage for a house or apartment with separate business premises more favorably. Then, however, it is necessary to declare in advance what area it will occupy.
Also Read for Guide to Commercial Real Estate
When Businessman Wants to Invest
On the other hand, when businessmen want to invest in the purchase of commercial premises, they must take into account a higher bank margin (approx. 1-2%) and other fees, e.g. a commission for granting a loan. Institutions also very carefully verify the company’s financial situation. The smallest chances of getting a loan have companies that operate shortly and it is difficult to predict the stability of turnover as well as those that have been in arrears with payments and taxes in the past. The loan period for entrepreneurs is also shorter than for natural persons. Banks most often offer a loan for 10-20 years.
However, before we decide on financial support in the form of a loan, it is necessary to calculate carefully whether the investment will bring the expected income. And after paying the installment, we will be able to count on a profit.
Most banks treat applications for rudn enclave commercial real estate loans individually, so the conditions may differ significantly depending on the institution.
Commercial Property Fees and Taxes
The commercial and residential owners are obliged to pay real estate tax and land tax.
Property tax
It must be borne in mind that the real estate tax for commercial premises is much higher than for apartments. The rates are set by the commune councils at annual sessions and are billed for 1 m 2 of usable space. However, according to Art. 5 sec. 1 of the Act on Local Taxes and Fees, their amount may not exceed the maximum value announced by the Minister of Finance. This means that the rates may be completely different in Warsaw, Gdynia, or Katowice.
In 2021, the upper limit of rates for PLN buildings or parts of buildings is:
- 24.84 – for premises related to running a business and residential buildings or their parts used for business activities;
- 5.06 – for premises related to the provision of health services within the meaning of the provisions on medical activity and occupied by institutions providing these benefits;
- 8.37 – other premises, including those used for statutory public benefit activities against payment.
Under Art. 6 sec. 1 of the Act on Local Taxes and Fees, the tax obligation arises from the first day of the month after which we acquired the rights to the real estate. As it is an annual tax, the tax office will charge you a fee proportional to the tax period for the first year.
What do you need to know about investing in commercial premises?
Investing your money in a commercial property seems simple. You need to well prepared in case of buying apartment for rent. What factors do you need to consider?
Location as a key element
One of the important factors for the success of a project is the right location. The future owner should look at the surroundings from the perspective of the franchise holder. Important issues include how many people pass by the premises every day. Are their parking spaces nearby. What kind of services and shops are in the vicinity and whether the shop windows are parallel to the street. They should result in a long-term contract and systematic rental income. You must remember that any interference with the finish of the premises requires notification to the conservator of monuments. Sometimes obtaining his consent.
