Explore 
Buy 
The Pulse
Community
Purchasing a Commercial Property
If you’re looking to purchase a commercial property, there are stand out differences from a residential purchase to be aware of.
- The minimum down payment to purchase a property with commercial zoning is 25%
- Should the value of the property exceed $1 Mil within Toronto, or $600,000 outside of Toronto, and depending on the location of the property, the Lender may stipulate a down payment higher than 25% or price the rate of financing higher, or both.
- An appraisal is required. A commercial appraisal on average costs in the range of $1500 – $2500. The pricing is based on the size and location of the property.
- The Appraiser used must be listed on the Lender’s approved list.
- A commercial appraiser will use one or two of the following approaches when evaluating the property:
Direct Approach: The Direct Comparison Approach is based on sales and listings of comparable properties
Cost Approach: The Cost Approach focuses on the improvements to the property, value of the land, construction costs of improvements, less the reduction in value due to depreciation (if applicable)
Income Approach: The Income Approach is based on rents, expenses and cap rates of the subject property
- A Phase 1 Environmental (ESA) is sometimes conditioned by the Lender. The cost of this report is based on the size of the site and the location. An average cost for a property in Toronto with approximately 5000 sqft would be somewhere in the range of $1800 – $3000. This report from the date of request is usually completed within 3 weeks. Some Environmental Appraisers will take a rush order for an additional cost. An ESA report is the Lender’s due diligence in determining potential or actual site contamination. Depending on the findings in the Phase 1 report, the Lender may further request a Phase 2, which is a more in depth report containing such items as soil tests and chemical analysis for hazardous substances.
- A Lender must see reasonable income for the property. If the property is to be tenanted, the Lender will request either a Lease or “Intent to Lease”. The rents must comply with average rents listed within the commercial appraisal. Should the property be occupied by the Owner of the property, the Lender will request financials showing adequate income to carry the cost the property.
Comparatively speaking, acquiring a commercial property is far more complicated than acquiring a residential property. That said, for business owners especially, a commercial purchase could prove to be incredibly lucrative by saving significant amounts of capital from going to expensive rents.
If purchasing a commercial property is on the horizon, working with an experienced and reputable Real Estate Salesperson and Mortgage Broker will prove to be incredibly beneficial to the purchaser as they guide the way thru a very involved purchase.
About the Author
Sandra Grywul, Mortgage Broker, Principal Broker (License: #M08000313) & Owner of Always A Mortgage Corp., Brokerage (License: #11986), Columnist for Condominia Magazine, Blogger for TheRedPin. Sandra’s blog topics for TheRedPin primarily focus on Mortgages, Consumer Debt & Personal Finance.-
http://www.skillsolutions.com.au Johnluis
