How to Analyse Financial Performance in Investment Property

When looking at a commercial Net Maddy property of any type, you need to spend time on the financial aspects of the property before you form an opinion about the price that you think you can achieve. The financial aspects of the property can have a major impact on the price and or the interest of purchasers. The economic factors of a building or a property can impact the asset for many years and, for this reason, must be analyzed and identified. We have detailed some of the major aspects of financial concern in a property purchase or sale scenario. While these are not the only categories of activity and anxiety, they are the major ones in most circumstances. We recommend creating a checklist from these items so that your property review and inspection process is suitably enhanced and professional.

The Asset Schedules: The property will contain many fixed and moveable assets. These will normally be detailed on the asset register. A well-maintained commercial property will have an up-to-date asset register for your review. Obtaining the asset register at the early stage of sale consideration is productive as it will tell you in detail what you are selling and later become part of the due diligence process.

Bank and Personal Guarantees: An investment property comprises leases and other documents that support tenant occupancy. A normal leasing process would involve creating some form of guarantee to be provided by the tenant to the landlord for the duration of the lease. This guarantee must have the strength and substance to reimburse the landlord when the tenant defaults under the lease terms. At the time of property sale, these guarantee documents should have some form of ability to be transferred or re-issued to the incoming purchaser. This process is called an assignment of the guarantees. You should consult with the landlord’s solicitor to identify the types of contracts involved and the ease with which this can be achieved at the time of sale.

Capital Expenditure: Major items of plant and equipment we placed in a commercial property are usually regarded as capital expenditure and separately itemized for taxation and depreciation over time. Taxation laws in your location will stipulate the depreciation terms as they apply to different types of capital expenditure. For example, a computer purchased for the building control system will depreciate far quicker than the air handling unit purchased for the air conditioning plant. Well-maintained property records will include a detailed capital expenditure register and the date the capital item was purchased. Property purchasers will be interested in the depreciation this register provides against the cash flow in coming years.

Taxation and GST: Every country and property location has unique taxation laws and requirements relating to property, particularly investment property. It is important to understand that these matters have been correctly handled and are up to date. In the sale process, it is sometimes necessary to view the net returns for the property for the last few years applied to the taxation statements and lodgement process. You can also seek written confirmation from the property owner that all taxation matters are up to date. Income and Rent Analysis:

The income for the property is a reflection of the leases and occupancy licenses therein. It is essential to understand that the leases or claims have collected the rent and that all rental matters are current. Part of this process will also involve checking ohe rent review profile and the expiry profile of all leases. A property with volatile leases or leases that are soon to expire is likely to impact the price or the buyer’s interest. When reviewing tenant occupancy against leases, you should review the original documents and cross-reference this to the tenancy schedule and any discussions or information provided by the landlord.