Commercial Property Finance
Commercial property finance is often more complex than normal residential funding. Some financiers specialise in commercial property finance because of the complexity of some situations. Normally banks will lend up to 70% of the value of the property but this value is often based on the rent/yields achieved by the property.
Emphasis is placed on the following criteria when analysing a transaction:
Property fundamentals – This includes property type, condition, layout and location;
Market analysis – This ensures that the property is at its highest and best use and is in line with market valuations and demand;
Investor analysis – Each client behind a transaction must have the relevant knowledge and experience to maintain the property;
Counterparty strength – Tenants must have a strong operating history and sound financial standing to give comfort that, going forward, lease obligations will be met.
Commercial Property Investment Structures
Commercial property can be acquired in the name of a personal individual or a syndicate of investors in their individual capacity, a Close Corporation, a Company (Pty Ltd) or a trusts can purchase commercial properties.
Understand your risks on a commercial Property
A well-researched commercial property investment can be very lucrative and require little attention for some time once it’s tenanted. However, awareness of the risks will enable the investor to be prepared for adverse circumstances.
Risks a commercial investor should to be aware of:
- Lease terms
Long-term leases of 3–5 years or more can have advantages, but it takes longer to find a tenant if the property becomes vacant. Prolonged periods of vacancy are common and an investor will need to be able to handle the carrying costs during this period.
- Size of commercial property
Larger commercial properties can be harder to lease than smaller units and will cost a lot more on holding costs.
- Supply & demand
The changes in supply conditions can create potential problems. An increase in new property coming onto the market in the same area creates a threat to existing tenancies as tenants may look to upgrade or expand. Strong supply can also reduce potential yields.
- Changes in infrastructure
Major infrastructure implementations or changes have both a beneficial and negative effect on commercial property returns. While infrastructure can attract commercial investment to an area, it has the negative effect of drawing tenants from existing areas. Keep in mind that areas close to CBDs are always popular. However, new growth areas further away tend to have more pronounced cycles.
Do investors understand the commercial property market drivers?
The most fundamental driver for commercial property growth is similar to the residential market – it’s demand. However, commercial demand is driven by economic factors as well as population growth and consumer behaviour.
Booming commercial markets are supported by strong international, national and local economies and a strong economy is fundamental for any successful commercial property investment.
With the growth of the economy, logistic companies experience the first signs of growth, driven by the increased demand for materials used in the manufacture of goods for sale, an increase in imported goods and or an increase in building activities. Transport stocks begin to rise on the back of increased business and earnings, more jobs become available, and the demand for office space increases.
As the economy continues to grow, the demand will start for warehouse space, then retail, followed by office.
Receive Member Only Benefits by joining the in2assets Real Estate Buyers Club
The in2assets Real Estate Buyers Club focuses on sourcing safe and successful hands-free real estate investment opportunities within a variety of niches. There are thousands of members benefitting from being the first to know about many new real estate investment opportunities in Southern Africa, whilst having first access to our detailed new listings and members recommendations.
The in2assets Real Estate Buyers Club is free to join and has many advantages for both buyers and sellers by having preferential access to all members via our information network.
Your membership will guarantee you staying ahead of the latest real estate investment trends; and meticulously investigating unique niche opportunities, in2sssets ensures that our members benefit from both our passion for property and market knowledge. We offer a direct service to people, and pride ourselves on being real and transparent, with a focus on property sales statistics and realistic projections.
The in2assets Real Estate Buyers Club is not an investment pool and all our focus is to help you, the Buyer, to find a property that suites your needs. To be in a position to determine your specific property investment needs, we first need to know your areas of interest in any niche and mainstream real estate markets.
We always will have selected specific opportunities based on yield size, capital growth, security and reliability. Not all of our property opportunities are listed on our website and are sometimes of confidential nature, only available to our club members.
In essence: The service we provide is solely to educate and assist our members to invest into the right property, with the aim to build a long term relationship and to develop trust and confidence in what we offer.
- First time residential purchase advice
- How to build a residential portfolio
- How to build a commercial portfolio
- Assistance in financing property transactions
- How to value commercial or residential property
- How to inspect buildings
- Legal advice in property law in South Africa
- Property Glossary
- Property trends and analytics
- Deeds service advice
- Procurement services
- Sales & marketing services
- Zoning and servitudes
- Land claims
- Consumer Protection Act
- A pool of property related templates
- Property management advice
The property service industry and market that we operate in necessitates:
- Private residential property owners & sellers
- Commercial owners & sellers
- Institutional owners & sellers
- Listed property funds
- Retail banks (finance and recovery)
- Commercial banks (finance and recovery)
- Liquidators and business rescue practitioners
- Attorneys and property conveyancers
- Commercial brokers and real estate firms
The type of property that we are dealing with:
- Residential property including lifestyle properties
- Commercial property including apartment blocks
- Retail including large shopping centres
- Industrial properties including industrial parks
- Hospitality and Hotel Investments
- Agricultural property including game farms
- Lease hold properties and sale of property shares
- Development land
- New developments
As a in2assets Real Estate Buyers Club member, you will have access to a big pool of information that will help better equip you in understanding the real estate world and to make the right decision when it comes to buying property.
At some point in the future, despite high rental returns, you may wish to exit the investment in order to realise the capital growth. The right exit strategy is crucial and by than we hope our relationship has grown to the extent that our team of property marketing experts can assist you in the sale of your property via our membership platform of the in2assets Real Estate Buyers Club.
What are Fittings in a Property Transaction?
Fittings are Items such as curtains or carpets, which are not fixed to a building and are not included in the sale of the property unless specifically included as such in the deed of sale.
Why is good Property Photography important?
Good photographs and videos can make the difference between just offering a property for sale and really appealing to a potential buyer. Many times the photos of a property motivate a potential buyer (or not) to take the next step, to decide to look at the property. Photos and videos are the first impression a potential buyer has of a property. They "sell" the property!
What is an Access Bond Facility?
An access bond facility allows bondholders to pay extra cash into a home loan account to benefit from savings on interest on the bond, but bondholders can withdraw this cash again if needed.
An access bond can also be used as an effective tool to manage your money and to pay off your property quicker. It is a mortgage account that is flexible and simple and gives you access to funds accrued while paying off your bond.
If, for instance, you purchase a home worth R1m and pay the monthly instalment plus an additional R1 000 a month, Rainer Stenzhorn of in2asets says you will save very little in interest in the first year or so. This is because you will only have paid off an extra R12 000 in capital on the initial amount of R1m.
Stenzhorn says on a 20-month mortgage of R1m, you will have repaid R19 902 in capital in the first year, which would have been R31 902 if you had paid an extra R1 000 a month.
He explains that as time progresses, the outstanding amount of capital will get smaller, meaning the interest component of the monthly instalment will also get smaller as it is calculated on a diminishing outstanding capital amount.
What are House Rules?
House rules are in general Rules governing the control and management of the property in a Sectional Title development.
What is a Homeowner's Association?
The homeowner association is an association of homeowners in a given area, formed for the purpose of improving or maintaining the quality of the area. Similar to a body corporate.