Property Purchases: What could go wrong?

The 7 mistakes that shipwreck commercial property purchases

Property Purchases
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Are you looking at property purchases?

The decision to purchase a commercial property is a significant milestone for any business – a milestone that comes with a large capital outlay and its fair share of risk.

This is why it is essential that you are well-informed and fully prepared before negotiating any property purchase for your business. After all, once that purchase agreement is signed… you’re on your own.

What may, at first, seem to be simple workarounds (“I’ll sort that out later…”) will most likely have a significant impact on your business much sooner than you think.

Common mistakes made in property purchases

So, here are the seven most common mistakes made in property purchases, that, unfortunately, are also the most painful… 

1. Choosing the Wrong Location

This is the mistake a new owner will take longest to accept – after all, they liked the property, they chose the property, and they purchased the property. And this mistake comes with difficult questions…

Before purchasing, did you really consider the practical needs of your business? Did you really research the area with regard to your target demographic? Did you really keep an eye out for a possible better location after you found this one?

“Wrong location” can be to blame for lack of foot traffic, difficulty attracting customers, difficulty receiving and dispatching goods, poor market share… and, of course, loss of your revenue.

2. Not checking property zoning or restrictions which impact business use

Each property has its own zoning regulations that dictate how it can be used, and it is essential you understand these regulations before committing to your purchase. Failing to do so can lead to unexpected limitations on the use of the property, legal issues, or even the inability to use the property for your intended purpose.

You must research and understand all zoning regulations, restrictions, limitations, caveats and covenants of a property before making your purchase decision. Otherwise, you run the very real risk of owning a very large white elephant.

3. Failing to Conduct Proper Due Diligence

Before making property purchases, it is essential that you conduct proper due diligence.

This includes researching the surrounding area, the land condition, the property, the building condition, the building services, and any potential issues or concerns that may impact the purchase. Failing to conduct proper due diligence can lead to paying too much for the property or unexpected problems down the road.

Never assume the “sell” spiel from the vendor is going to include all the potential downsides that could impact your business. It’s not up to them to conduct your “due diligence” for you.

4. Failing to Consider the Future Needs of the Business

When purchasing a commercial property, it is important for tenants to consider the future needs of their business. This can include everything from the need for additional space to the need for specific amenities or features.

Failing to sit down and accurately chart your future needs can lead to costly renovations, or even the need to move to a new location… and that would mean all your work has been wasted, and you face starting over.

5. Not Negotiating the Price

Inadequate negotiation skills inevitably lead to overpaying for commercial property – and that will have a long-term impact on the financial health of any business.

Always negotiate. Then negotiate harder. After all – that first dollar figure you see? That’s the price decided on by the seller to give them the best deal – not you.

If you don’t have watertight knowledge regarding the market value for the property type, then you are virtually guaranteed to leave a chunk of your money on the negotiating table.

6. Rushing the Purchase Process

Some tenants may feel pressure to rush the purchase process in order to secure the property they want. There’s a technical term for this motivation to commit early… it’s called “ME WANTY!”.

However, rushing the process can lead to a number of mistakes and oversights. This can include failing to conduct proper due diligence, or making the wrong offer on the property, or even buying the completely wrong property!

There is never a need to panic buy. Remember, you are unlikely to completely miss out on a great property, because there is a deal every week.

And here, it’s worth mentioning Mistake #6½… even as you go in to the deal, you should have a fair idea of how you are going to come out of it. Rushing in to buy the “new shiny thing” rarely includes a well-developed exit plan. One day you may want to sell – so it’s important when you enter negotiations to buy (the exciting, optimistic part), that you have previously worked out a strategy for when you exit the property and need to recover your capital and profit (the less exciting, more pessimistic part).

7. Failing to use professionals

Negotiating  property purchases are a complex and challenging process. This is why it is important to seek out professional assistance from a Property Advisor who has intrinsic market insight, will research the property value and negotiate on your behalf… and is not influenced by ME WANTY-ness.  Failing to use a professional can lead to a number of mistakes (probably most or all of the previous 6), and that will severely impact the success of your business.

So, what do these 7 mistakes all have in common?

They show that the bright lure of new premises within your grasp (“I just sign this, and I’m up and running!”) can end up blinding you to any potential failings that will see you scuppered. Unexpected expenses, legal issues, the inability to use the property for the intended purpose, fewer customers, depleted revenue…  why take the risk?

You want to make decisions about property purchases that sets your business sailing to new horizons, not sinking slowly to the depths.

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Marcus Bosch

Marcus Bosch

Managing Director