Real Estate

Commercial Unit or office space owning ?

  • Last Updated:
  • Dec 15th, 2020 5:08 pm
[OP]
Sr. Member
Apr 5, 2017
611 posts
141 upvotes

Commercial Unit or office space owning ?

Hi there,
I'm interested in investing in Commercial Unit or office space. Anywhere in GTA or Durham region. What all things have to be looked into ? How much is the average space for smaller units which is ideal for medical small clinic set up ? Do we get mortgage for this type of Investments ? Do's & Don't's
TIA.
4 replies
Deal Addict
Nov 22, 2004
1507 posts
595 upvotes
Yes, you can get mortgages for such commercial properties but the rates are generally higher than residential (I think current average is around 4~6%).

Are you looking to use the space yourself or rent it out?
Realtor @ Royal LePage Ignite Realty
Deal Addict
Mar 2, 2017
1422 posts
2602 upvotes
Toronto
MK1986 wrote: Hi there,
I'm interested in investing in Commercial Unit or office space. Anywhere in GTA or Durham region. What all things have to be looked into ? How much is the average space for smaller units which is ideal for medical small clinic set up ? Do we get mortgage for this type of Investments ? Do's & Don't's
TIA.
Are you going to be the end user of the space? You should be looking at former retail space to see if you can find a deal as well as traditional office. Also need to confirm zoning for your end use.

Down payment will be 35%-50%, usually.
Realtor, Investor, CPA
[OP]
Sr. Member
Apr 5, 2017
611 posts
141 upvotes
Clueless Fox wrote: Yes, you can get mortgages for such commercial properties but the rates are generally higher than residential (I think current average is around 4~6%).

Are you looking to use the space yourself or rent it out?
Both !
Deal Addict
Nov 22, 2004
1507 posts
595 upvotes
MK1986 wrote: Both !
There are several factors and pros/cons, all dependent upon your objective:
  • In general, commercial investment is much better suited if you're running a business yourself or for rental income. It is not the ideal/best route for capital appreciation due to various reasons.
  • Pros: As a landlord, you get a lot more leverage over tenants. You don't have any landlord-tenant board to deal with any issues. You can have one-sided lease where the tenant is responsible for all costs (maintenance, property taxes, insurance, etc.), and you can increase the rent by any amount you like. If the tenant doesn't pay, you can send them a notice/lock them out/kick them out much faster without waiting for months to collect rent. In some cases, you can sell their stuff to recoup the rent losses. Commercial leases can be exhaustive (35~40 pages) and cover a ton of contingencies, mostly favouring the landlord.
  • Pro: Lease terms are generally long (3 to 5 years or more) so you don't have to worry about finding new tenants. Commercial tenants also prefer to stay in one place of established business instead of moving around a lot. This depends on the business of course.
  • Pro: The tenant is generally responsible for all the interior renovation work and you can require them to dismantle everything when leaving and give it to you in the same condition as they found it.
  • Cons: It can take longer to find tenants that agree to the terms and conditions, and while the place is sitting empty, you have to carry the costs, which can add up if you don't have much buffer.
  • Cons: It can take much longer to sell a commercial property because the buyer pool is much smaller compared to residential. It's also not the best vehicle for capital appreciation.
  • Cons: Investment and carrying costs can be high so it's a good idea to have a solid buffer. Compared to residential where you can bank on capital appreciation to recoup your investment, you don't want the same reliance with commercial properties and should focus on ensuring that you're cash-flow positive instead.

The "buyer beware" thing is more of an issue with commercial properties because you have more things to check for in terms of due-diligence compared to residential. If you're buying a place to run a business yourself, you should have a very clear idea of your business requirements. The lawyer, realtor, contractor or any other technical expert can guide you through the mechanics but won't be able to make the call as to whether it is the right property or location for you.

If you plan to buy a unit in a complex then you'll have condo fees associated with it which can run pretty high as well. Among other things, it's highly recommended to get a feedback on the property manager to figure out how well they manage the place.

All the best
Realtor @ Royal LePage Ignite Realty

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