Have you grown tired of dealing with tenants, and all of the potential issues that come from residential rental real estate and property management? If this is the case, then maybe it’s time to give commercial real estate a try?
There are many very good reasons to invest in commercial real estate, which I will address in my next blogpost, but there are also a few things to watch out for, especially if this is your first time!
1. GST. That’s right, you have to pay the dreaded GST on any commercial real estate purchase. That 5% can really add up, so be sure to budget for this at closing!
2. Liquidity, or lack thereof. Commercial real estate can take longer to sell than a house or condo. The pool of buyers is much, much smaller, so don’t expect the multiple offers after the first open house like we’ve all become accustomed to in the residential world!
3. Higher closing costs. Commercial real estate has much higher closing costs! You have to pay the GST as mentioned before, generally a 1-2% broker fee, both sets of legals (buyer and seller), a professional appraisal, and sometimes an environmental report. These costs can easily add up to 10% of the closing costs.
4. Longer vacancy periods. Commercial property can take much longer to rent out than residential rental real estate. Finding a good commercial tenant to lease your property can take months, so be sure to leave yourself a little breathing room here.
5. Higher interest rates. Generally interest rates for commercial properties will be slightly higher. Plan for at least a percent more than residential.
6. Longer closing periods. Everything takes a little bit longer in the commercial world! Give yourself a minimum of 30 days for due diligence, then another 30 days on top to close. Appraisals take longer, and banks can take much longer to crunch the numbers. Don’t try to close in two weeks like you might in the hot residential real estate market!
Looking to test the waters in the commercial real estate world? Contact our property management company and we can help you out!
Chris Stepchuk
March 10, 2018
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