When looking at a new commercial or retail investment property for the first time, it is wise to have some form of checklist and system that assists you. We have created this checklist to help get you on the right track.
When inspecting the property is almost like having your own due diligence process underway. Do not believe everything you see and certainly investigate anything of question. Anything of importance that someone tells you about the property should be investigated.
Having a keen eye for property detail and a diligent record-keeping process as you walk around is the only way to inspect investment property. It is remarkable how these records have to be revisited at a later time for reassessment.
So let’s consider the following as some of the basic issues to review in your property inspection process.
A copy of the land title records is fundamental to your inspection before you even start. As part of this process, also seek a copy of the survey records and any existing leases or licenses. Also, seek out any unregistered interests that may not appear on the title to the property. If in doubt, seek a good property solicitor to help.
Take care to understand the location of the property boundaries and look for the survey pegs relevant to the survey plan. If in doubt, seek a good surveyor.
Within the property land title, there can be many easements, encumbrances, and other registered interests that need fully investigating. These interests can impact the price that the property achieves at the time of sale and impact the lease occupancy method. If any registered interests exist on the property title, a copy of the relevant documentation is the first stage of the investigation, which questions should then follow.
Local council records may also have an impact on the property. For example, are there any orders or notices issued or outstanding on the property, and can these things be of concern to the potential investor?
The zoning for the property and the zoning activity or changes in the precinct can impact a property. As part of this process, it is wise to include neighboring properties and inspect them to ensure that they have little or no effect or impact on your subject property.
Copies of the local town plan will help you understand current planning issues. A discussion with the local planning office or planning officer can put you on the right track and explain any current issues or matters that may arise. In this process, it is wise to keep records of the discussions and the findings.
If a copy of lease documentation is available for neighboring properties, seek it out and review it. It is always good to know what the neighboring tenants are doing and how long they will be there.
The local topography and plans across the immediate area will help you understand the fall of the land and the impact of any slopes and natural drainage. Look at the location of any watercourses and flood plains. Seek out the history of any flooding in the area.
The supply of electricity into and across the area should be understood. If your property is industrial, then the supply of energy to the property will be strategically important to any industrial tenant. If any easements or encumbrances exist across the property for electricity, then seek to understand the rights and obligations that these documents create on the property owner.
Services and amenities to the investment property will impact the future operations and interests of the business community. Therefore, to ask here is the nature of these services and amenities and whether they are well maintained.
Look for changes in road and transport corridors that impact the property or region. Any change inroads can dramatically shift how property is used.
Look for the location of public transport and its potential to enhance your property function. For example, many businesses need stable and frequent public transport to help employees access their jobs.
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Look at the community and business demographics of the region. The growth patterns for the last 5 to 10 years will help you understand the property’s future.
Other property valuers in the area are a good source of market intelligence. They can usually tell you the history of the area and the current business sentiment. In addition, rental levels, incentives, and sale prices per square meter are valuable elements of market intelligence. They will all have an impact on the yield that the property presents to any property investor.
Look around the area to see how many other properties are currently available for sale. Seek details of these properties and the prices being sought. If these properties have been on the market for a long time, it will give you an idea of just how acceptable the regional prices and business sentiment are at the time of your inspection.
Look around the area to see how many properties are currently vacant. Then, concerning each particular vacant property, get details of the rental being sought and the property’s time on the market. You will need to form your own judgment on whether these rentals are relevant and reasonable in the current marketplace.
The supply and demand of vacant space by property category is an investigation to be undertaken in the region. You want to know exactly how much space is coming into the market in the future and how much space exists now for tenants to occupy.
Check out any new property developments that could be in the early stages of consideration and development approval. The key question here is the impact that these properties may have on your property.
The history of the area is always of high value to you. In the commercial, industrial, and retail investment property, the history that you are after is the last five years. It is remarkable how much information you can glean from regional property sales and rental trends. Given that commercial and retail investment property works on the cycle of rising and fall, it is history that can open up your understanding of what’s been going on and where things are headed.
With any property investigation, particularly with complex and large properties, it is wise to seek out the comments of architects and engineers. What you need them to do here are comment on the property’s structural integrity and its future usable life. Also, seek to identify how the property may be expanded or refurbished when times require.
Chase down the tenancy schedules for other properties in the area. Whilst these are not always easily obtained, they are of high value. They will tell you so much about the activity in other properties and buildings that may impact your future leasing strategy or property sale. What you do not want is a significantly high vacancy factor near your property when you try to lease it.
Review the local precinct for the larger businesses and how they operate. In doing this, you can understand who are the major business players and the major employers. Having these companies in the area is good, but losing them can be a major threat to the region. We call this the business stability factor. It should form part of your investment property assessment for the future.
Please review the other major tenancies in the area and see how they operate. They can both stress and enhance the area depending on how they operate and the times they do so. Of prime example is a transport company that has vehicle access peaks at certain times of the day. This can challenge the other businesses in the area and how they operate.
Walk around the precinct and the property taking many photographs for later investigation. It is surprising how useful photographs become for the reassessment of the property inspection. Walking through the streets in the region allows you to get a feel for the function of the streets and the neighboring properties. It puts you in greater perspective for the services and amenities and the function of all local surrounding businesses. A tip in keeping digital photographs for later evidence is the reversion of the important photos to ‘gif’ type files. This format is not easily changed and, therefore, more stable as court evidence of critical matters.
Knock on the doors of the other local businesses and talk to them about how things operate locally for them. Other tenants and businesses in the region will tell you so much and track challenges and problems in the region.
Inspecting the commercial investment property is very much a physical process. In only this way can you completely connect with the property function before you form an opinion of its suitability for your plans, pricing, rental, or occupancy. John Highman is a prominent investment real estate speaker and coach that helps property investors and real estate agents globally to improve their commercial real estate property performance. He is a successful real estate agent specializing in major commercial asset sales and leasing for over 30 years.