Acquisition of commercial property in Spain is a great investment opportunity with low risks and profitability higher than bank deposit rates. The process of purchasing commercial property generally is very similar to the purchasing residential real estate and consists of 2 parts - signing of the reservation contract and signing of the final purchase deed. In this article we are going to to inform you about the key moments of how to choose the best property for investment. As for the procedure of purchase - this information you can find in the article about residential purchase deed guide.
The key moment in choosing commercial property is investor's strategy. Some investors are looking for a property to gain the highest profitability, others are more interested in the liquidity or properties with prime locations. There are also strategies directed on the maximum rental income and others that are orientated on the growth of the property value in the nearest future.Of course the aim of any investor is to find a property that combines as many of above mentioned qualities as possible, but it's important to take into account the current real estate market realities in Spain.
For example, commercial properties situated in the prime locations on central streets of Barcelona and Madrid usually don't offer the highest profitability. However, these properties have abundance of potential leasers with good guarantees and you will have no problem reselling it with considerable gain. Highest profitability is usually provided by properties located further from the centre, in the suburbs of big cities and smaller towns. Profitability of such premises usually depends highly on the current leaser and its essential to pay attention to the lease agreement.
Commercial properties on sale may be sold empty or with current leaser.
In case of buying a property with the current leaser the buyer takes over all the obligations of the current lease agreement. And the leaser in his turn continues following the contract answering to a new owner. On one hand, buying a commercial property with current contract gives the buyer clear overview of the actual profitability, but on the other hand it doesn't allow to find new leasers and maybe increase rentability. It is very important to meticulously check the existing contract before the purchase. As a rule, rental agreement stipulates a minimum period of obligatory execution from the leaser. That means, e.g. , that leaser cannot leave the premises and stop paying rent before this period.As for the landlord, he has to keep to the agreement till it's expiration date. So if the agreement is signed for 15 years with obligatory 5 years execution , the leaser cannot move out earlier than in 5 years and the landlord can only revise rental fee when it expires in 15 years. Independent form the price agreed in the contract, this amount is subjected to consumer price indexation (Sp.IPC índice de precios al consumo). For the last years the amount if this index is very insignificant and doesn't effect the rental fees a lot.
Now even if the current contract has long term of obligatory execution and you are satisfied with the current conditions,we always advise to study the commercial property market before making final decision. This will help you to evaluate demand from the possible leasers and rationality of the rental fee.
In case any of the contract's statements don't satisfy the buyer, its always better to try and review them before the deal signing. There is always a better chance of reaching an agreement before finalizing the purchase deed.
One of the most frequently asked questions from the potential investors is whether it's better to buy commercial property as a natural person or as a legal entity. Both of the options have their pros and cons.
In case you are buying as a natural person, you can't count on your expenses to be subtracted form the taxable profit that appears due to the commercial property lease. That means you have to pay VAT and income tax form the whole amount of the property lease income. On the plus side the documentation management is pretty simple and you won't have to present quarterly tax report.
If on the other hand you are buying as a legal entity you can subtract property depreciation costs and mortgage interest amounts from the taxable profit. You can also subtract other expenses connected to your commercial activity and compensate the VAT amount. But with that comes accounting responsibility and necessity to present quarterly tax report. To be able to receive personal income from your company you will also need financial scheme and respective documentation management.
As a rule, if you only buy one property we recommend to do so as a natural person. And in case you already own some properties or plan to create a structure with several commercial properties and manage them it is better to buy as a legal entity.
To choose a better way of commercial property acquisition don't hesitate to contact Albert Good commercial property department.
After finalizing the purchase deed acquiring commercial property you will need to regularly perform following actions:
You may also need a qualified help in conducting all possible negotiations with the leaser. In this recommend contracting Albert Good full services package for commercial property owners.