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How to Buy Commercial Properties Properly
The purchase of a commercial property is an important decision. To avoid costly mistakes, careful planning is essential. Would you like to learn more about the optimal financing of your commercial property? [Learn more in our article about land valuation](/contact).
Financing a commercial property requires careful planning and detailed analysis to avoid costly mistakes. Consider the higher demands of banks and the more complex risk assessment.
Equity plays a crucial role. A high equity ratio improves interest terms and creditworthiness. By optimising financing, return on capital employed (ROCE) can be increased by up to 3%.
Check the land use plan before purchasing and calculate the ancillary costs in detail. A comprehensive loan comparison and a well-thought-out risk management strategy are essential for a successful property purchase.
Financing a commercial property differs significantly from that of a residential property. It is crucial to understand the peculiarities and requirements to avoid costly mistakes. This article offers you a comprehensive guide to help you develop the right financing strategy and successfully implement your project.
What defines a commercial property?
A commercial property is primarily used for conducting business activities. Unlike residential properties, which are for living purposes, commercial properties are intended for production facilities, warehouses, office buildings, or retail spaces. The possible uses are diverse but are often subject to strict regulatory requirements stipulated in the zoning plan. These requirements can affect the type of development, the height of the buildings, and the permissible emissions.
Financing commercial properties is more complex because banks impose higher requirements on the creditworthiness and value stability of the property. In addition, specific risk assessments play a larger role, as the economic development of the company and the market situation of the respective industry need to be considered. Solid financial planning and a detailed analysis of the potential uses are therefore essential.
Why is the financing more complex?
The complexity of financing commercial properties arises from several factors. Firstly, the requirements of the banks are significantly higher than for residential properties. Banks examine the financial stability of the company, the viability of the business model, and the long-term profitability of the project. Secondly, the specific risk assessment plays a decisive role. Banks analyze the sector in which the company operates, the competitive situation, and the potential risks associated with the commercial use of the property. Thirdly, the approval processes are often more lengthy and complex, which can lead to delays and additional costs. Comprehensive preparation and the involvement of experts are therefore essential for successful financing.
It is advisable to address the legal aspects of purchasing a commercial property early on to avoid unexpected surprises.
When financing commercial properties, you have various options available. A common method is the separate financing of land and construction, where you initially purchase the land and finance the construction later. Alternatively, you might consider a combined financing of land and construction, where you take out a loan for both projects. There are also special forms like KfW loans and building savings loans, which may be suitable under certain conditions.
Separate Financing of Land and Construction
The separate financing offers the advantage of securing the land early before the building plans are finalised. However, this method also carries risks. A major drawback is the potential dependency on the first bank (1st bank) that financed the land. Since this bank is listed first in the land register, it may leverage its position to demand higher interest rates for future construction financing. To avoid this dependency, you might consider variable loans as a solution. These loans can be repaid flexibly and without early repayment penalties, allowing you to switch to another bank later.
According to Dr. Klein, variable loans offer the flexibility to bypass dependency on the initial bank, as they can be quickly repaid without penalty fees.
Combined Financing of Land and Construction
The combined financing of land and construction offers the advantage of a simplified process with a single loan. This reduces administrative burden and complexity of financing. Additionally, you can benefit from potentially better interest rates because the bank considers the entire project as one unit. However, this method requires that you already have specific building plans and can accurately calculate the costs. Thorough preparation and obtaining offers from various banks are essential.
Interhyp provides comprehensive advice on different types of loans that may be suitable for the combined financing of land and construction.
Special Forms: KfW Loans and Building Savings Loans
KfW loans are an attractive option if you wish to build or renovate with energy efficiency. KfW offers low-interest loans and grants for energy-saving measures and the use of renewable energies. Building savings loans can also be included in the financing; however, you should consider the loan ceiling. A building savings loan often has a maximum loan amount that may not be sufficient to finance the entire property. However, it can serve as a supplement to a mortgage loan or a KfW loan.
ImmobilienScout24 provides information on various financing options, including KfW loans and building savings loans, to find the optimal solution for your needs.
Equity plays a crucial role in financing commercial properties. The more equity you contribute, the better your interest rates and creditworthiness will be. Banks view equity as collateral and are more willing to offer favourable conditions when a high proportion of equity is present. Additionally, a high equity ratio reduces the financing need and, consequently, the risk for the bank.
The Role of Equity
A high equity ratio positively impacts interest rates and creditworthiness. Ideally, you should contribute more than 20% of the purchase price as equity. This signals to the bank that you are financially stable and serious about the project. Furthermore, you can use the property itself as equity if you already own it, improving your bargaining position and enabling you to secure better terms. It is advisable to use all available equity to reduce financing costs and increase the chances of obtaining a successful loan.
The Finanzcheck.de emphasises that while full financing is possible, it is generally reserved for borrowers with excellent creditworthiness and collateral.
Detailed Breakdown of Additional Costs
In addition to the purchase price of the property, there are also additional costs to consider in the financing. These costs can make up a significant portion of the total costs and therefore should not be underestimated. Mandatory costs include the real estate transfer tax, which varies depending on the federal state, notary and land registry costs, as well as possibly broker fees. Optional costs may include development costs (particularly important in new development areas) and costs for a soil survey. It is advisable to create a detailed breakdown of all additional costs to obtain a realistic overview of the total costs.
Real estate transfer tax: Varies depending on the federal state and usually ranges between 3.5% and 6.5% of the purchase price.
Notary and land registry costs: Fees are incurred for the notarisation of the purchase contract and entry in the land register, which are based on the purchase price.
Broker fees: If a broker is involved, a commission is incurred, which is usually shared between the buyer and seller.
The Optifin.de notes that additional costs can amount to approximately 10.1% of the purchase price, including real estate transfer tax, land registry entry fees, broker costs, and lawyer and notary fees.
Strategic planning is crucial for the successful purchase of a commercial property. This includes choosing the right time, carefully reviewing the land register and zoning plan, as well as drafting the purchase contract. Thorough preparation helps you minimise risks and secure the best possible terms.
The Right Time to Purchase a Plot
The timing of purchasing a plot depends on your individual goals and circumstances. An early purchase offers the advantage of securing the plot at the current price. This can be particularly attractive if you expect land prices to rise. However, bear in mind that an early purchase may complicate future financing, especially if the plot already has a lien. Purchasing with house construction allows for better planning and avoids surprises regarding soil conditions and building regulations. It is important to weigh the pros and cons of both options and choose the strategy that suits your situation.
Geld.de provides information on various aspects of purchasing a plot, including financing.
Land Register Analysis and Zoning Plan
Before buying a commercial property, a thorough land register analysis is essential. The land register provides information on ownership status and any easements that may encumber the property. You should also examine the zoning plan to ensure the planned use of the property is permissible. A change in zoning can be costly and time-consuming. It is advisable to conduct these checks before purchasing to avoid unexpected issues. Therefore, the legal aspects of purchasing a commercial property should be thoroughly examined.
Optifin.de emphasises the importance of checking the zoning plan before purchasing, to avoid costly and lengthy rezoning processes.
Contract Drafting and Land Transfer Tax Optimisation
Drafting the purchase contract offers opportunities for land transfer tax optimisation. A legitimate strategy is to use separate contracts for land and construction to reduce the tax burden. However, a waiting period of at least 12 months must be observed to achieve the tax benefit. It is advisable to consult a tax advisor or lawyer to achieve the best possible contract drafting and save taxes. Pay attention to tips for purchasing a commercial property to avoid mistakes.
Selecting the right financing partner and conducting a comprehensive loan comparison are crucial for obtaining the best conditions for your commercial property. Compare offers from different banks and financial institutions to optimise interest rates, fees, and contract terms.
Home Bank vs. Alternative Financial Institutions
When choosing a financing partner, you have two options: your home bank and alternative financial institutions. Your home bank understands your financial situation and may be interested in a long-term business relationship. However, alternative financial institutions might offer more favourable terms as they specialise in certain target groups or financing models. It is advisable to seek offers from both sides and weigh the pros and cons.
ImmobilienScout24 recommends considering both home banks and alternative financial institutions to secure the best conditions.
Loan Comparison: What to Look Out For?
When comparing loans, you should pay attention to various factors. Besides the interest rate, the annual percentage rate is crucial as it includes all costs of the loan. The interest rate lock indicates how long the rate is fixed. A longer interest lock provides planning security, while a shorter interest lock offers more flexibility. The term influences the monthly instalment and the total cost of the loan. Additionally, you should consider repayment options that allow you to pay off the loan more quickly. It's important to consider all these factors and choose the combination that suits your situation best.
Ensure that you can adjust the repayment amount to flexibly respond to changing financial situations. Negotiate a prepayment penalty waiver in hardship cases to avoid high costs in unforeseen events. Prefer contracts with early termination options to be able to pay off the loan early if needed.
A comprehensive risk management strategy is essential to secure the financing of your commercial property. Identify potential risks and develop strategies to mitigate them. This includes protection against unemployment, disability, and interest rate change risks.
Recognising and Minimising Construction Financing Risks
When it comes to construction financing, there are various risks that you should consider. Unemployment and disability could lead to an inability to pay monthly instalments. An interest rate change risk exists when the fixed interest period ends and rates rise. It is advisable to include safeguarding strategies in the financial planning to minimise these risks, such as taking out disability insurance, unemployment insurance, and interest rate hedging.
ImmobilienScout24 advises taking these risks into account and developing appropriate safeguarding strategies.
Fixed Interest Rate vs. Variable Rates
When choosing between fixed interest rates and variable rates, you should weigh the pros and cons. Fixed interest rates offer interest security over a defined period, whereas variable rates are more flexible but come with the risk of increased rates. It is advisable to select a longer term with the option for early repayment to benefit from low interest rates while remaining flexible. A longer term provides a monthly security buffer and enables you to repay the loan faster if your financial situation improves.
The financing process for a commercial property involves several steps, from application to loan approval. Careful preparation and adherence to the required formalities are crucial for a smooth process.
Online application and required documents
The first step is to apply to the bank or credit institution. Many banks offer an online application which saves you time and effort. For the application, you need various documents, including payslips, ID card and tax assessment (for the self-employed). It is advisable to submit all required documents completely and correctly to avoid delays.
Finanzcheck.de offers a 3-step online application process and lists the required documents.
Credit assessment and loan decision
After applying, the bank assesses your creditworthiness. It obtains a SCHUFA credit check and evaluates your financial situation. The bank checks whether you can afford the monthly repayments and if the property serves as security. If the credit assessment is positive, you receive a loan approval. It is important to answer all the bank's questions honestly and completely to gain the bank's trust.
Follow-up financing is an important aspect of long-term financial planning. Keep an eye on the fixed-interest period and plan the follow-up financing early to benefit from favourable interest rates.
Keep an eye on the fixed-interest period
The fixed-interest period indicates how long the interest rate for your loan is fixed. After the fixed-interest period expires, you must complete a follow-up financing. It is advisable to keep an eye on the fixed-interest period and proactively plan the follow-up financing. Start searching for favourable offers in good time and compare the conditions of different banks.
ImmobilienScout24 recommends keeping an eye on the fixed-interest period and planning the follow-up financing early.
When is refinancing worthwhile?
Refinancing can be worthwhile if you can benefit from lower interest rates. Compare the interest rates on your existing loan with the current market rates and check if refinancing leads to interest savings. However, note that refinancing may incur costs for early repayment fees and land registry entry. It is advisable to conduct a comprehensive cost-benefit analysis to decide whether refinancing is worthwhile.
The purchase of a commercial property is a complex task that requires careful planning and preparation. However, with the right knowledge and strategy, you can succeed and acquire your dream property.
Summary of the key points
Let's summarize the key points for a successful property purchase: Check the zoning plan to ensure the intended use is permissible. Calculate additional costs for a realistic overview of total expenses. Compare financing options to achieve the best conditions. Careful preparation and involving experts help you minimize risks and achieve the best results. Leverage our commercial expertise for your success.
Future trends in commercial property financing
Digitization and new financing models will transform commercial property financing in the future. Online platforms and digital tools facilitate credit comparison and application. Crowdfunding and alternative financing methods offer new opportunities to raise capital. It is important to stay informed about these trends and utilize solutions that suit your situation. Urban development is increasingly influenced by these trends.
Do you wish to buy a commercial property and seek the optimal financing solution? We at Auctoa support you with our expertise and network. We assist you in developing the right financing strategy, avoiding hidden costs, and successfully implementing your project. Contact us today for personalized advice and secure your dream property! Contact us.
At Dr. Klein, you will find information about variable loans that can help you stay flexible.
Interhyp offers comprehensive advice on various types of loans for the financing of land and construction projects.
ImmobilienScout24 provides information on different forms of financing, including KfW loans and building savings loans.
Finanzcheck.de emphasizes the possibility of full financing, which however requires high creditworthiness and securities.
Optifin.de points out that the ancillary costs when buying land can amount to about 10.1% of the purchase price.
Geld.de offers information on various aspects of land purchase, including financing.
What are the biggest challenges in financing a commercial property?
The biggest challenges are the higher creditworthiness requirements from banks, the more complex risk assessments, and the lengthy approval processes. Solid financial planning and detailed analysis are essential.
What are the advantages of separate financing for land and construction?
Separate financing allows for early securing of the land. However, there might be a dependency on the initial bank. Variable loans can be a solution here as they are flexibly repayable.
What are the benefits of combined financing for land and construction?
Combined financing simplifies the process with a single loan and can lead to better interest rates. A prerequisite is concrete construction planning.
What role does equity play in financing a commercial property?
The more equity used, the better the interest rates and credit rating. Ideally, more than 20% of the purchase price should be contributed as equity.
What additional costs must be considered when buying a commercial property?
Additional costs include the property transfer tax (depending on the state), notary and land registry fees, and possibly broker fees. Also, development costs and costs for a soil report may arise.
Why is checking the zoning plan before purchasing so important?
The zoning plan determines the permissible use of the property. Re-zoning can be expensive and time-consuming, so the plan should be reviewed prior to purchase.
What should be considered when comparing loans?
When comparing loans, interest rates, annual percentage rate, interest lock, term, and repayment options should be considered. It's advisable to obtain offers from both home banks and alternative lenders.
What risks exist with financing a commercial property and how can they be minimized?
Risks include unemployment, disability, and interest rate changes. These can be minimized through risk management strategies such as disability insurance and interest rate hedges.
