Last month we looked at investor categories and how knowing your investment motivations can help make the road to purchase easier. In this month’s blog, we look at your ability to transact and how understanding your advantages and limitations can bring you closer to a successful commercial property acquisition.
Whilst deciding where to invest your hard earned money may be the first step to a commercial property investment, there are many more between that and the final acquisition. In order to have a smooth and stress-free sale, it’s important to first know the financial position you are in, as this will affect how fast you can move on a deal, and indeed the type of deal you are able to secure. It will also help your London commercial property consultant better facilitate a deal because they will have a clear understanding of both the buyer and seller, and will know that they are on the same page. Below we have identified three types of buyers and outlined how knowing your ability to transact will help us get you what you want sooner.
1. Cash buyers Cash buyers have the funds for commercial property investment already in an accessible bank account. The advantage of being a cash buyer is that you can purchase any investment you want; the only limitation is yourself. Whether you prefer to buy privately or at auction, cash buyers can move fast as they already have the money in the bank. The upside of being able to move quickly is that you should be getting a better deal and a better return on your money.
From the sellers perspective, cash buyers are very alluring, however for their own security, it is important to provide proof of funds when acquiring a property in this way. Ideally your funds would also all be in one bank account with proof of funds ready to go. This will ensure that the seller takes you seriously, which can be one of the most important factors when securing a deal.
2. Buyers relying on finance For a lot of clients purchasing a commercial property investment with finance is the most viable option. With finance there is a lender involved and often this serves as a second check to ensure the potential investment is a solid one. This is because the bank itself is risk averse, and they’ll need to ensure it’s good quality, long term and is making enough of a yield to cover their interest.
Of course, the flip side of this is that you’ll usually be slightly more limited in what you can buy (click here to view some examples of Financeable investments). Whilst it’s still possible to buy privately it will be subject to the bank’s criteria, and when purchasing at auction you’ll need to be aware of the auction’s time scale. It can take up to two months to secure finance, but at auction typically you’ll get four to six weeks to complete, so you’ll need to make sure finance is sorted within this frame.
When purchasing with finance you’ll generally pay around market price, however, when dealing with London property consultants like the team at Prideview, we will always work to try and get a better price. To optimise your chances of getting a good deal, we recommend speaking with a broker early on. They will do their diligence and get everything in order so that when you find the right deal you’re able to move on it quickly. They will also manage the relationship with the lender during the transaction, an often underrated task.
If you do have the money, but are using finance to spread it across multiple assets, a good option is to buy in cash first, and then refinance after the deal is done. That way you’ll receive all the benefits of buying in cash and once you’ve re-financed (a few months after completion) the money can go back into investment.
3. Self-invested Personal Pensions (SIPP investors) For SIPP investors, the options available for commercial property investment are more limited than other investors. For example, you can’t buy property with a residential element due to HMRC restrictions (click here to view some examples of SIPP-qualifying investments). However, more limiting for these types of buyers is that you have little control over the actual buying process, as this is the responsibility of a trustee. This makes it extremely difficult to work within auction timeframes, and often can be a roadblock when purchasing privately. Though it is possible, the process will be slow (generally well over two months) and it’s likely you’ll pay a premium to get a good deal.
Our advice for SIPP investors is always to move quickly. Quite simply, the longer you wait, the more chance that cash and finance buyers will have to get in and offer a better deal to the seller.
Stress free purchasing tip:
And finally, a note for all type of investors: make sure you employ a good lawyer. Lawyers can often be your best friend when buying commercial property, and a good lawyer will not only flag any issues and report back to you in a language you can understand, but also provide solutions to work around any stumbling blocks. At Prideview we recommend going through a lawyer who specialises in commercial property. This means you’ll get someone who knows what they’re doing, will help you get the best deal and who will make sure all the legal issues are in line so that you can have a smooth and stress-free purchase.
If you’re ready to take the next step in your investment future contact our helpful team at Prideview Properties today. With many great deals in our portfolio from all over the country and over 30 years experience in commercial property investment, we can find a deal to suit your needs and your budget. See the deals for yourself on our current opportunities page, or call us on +44 (0)208 954 0878 to discuss your investment requirements. Alternatively you can register your requirements with us here and we’ll contact you with some personalised investment opportunities.