How to Analyse Financial Performance in Investment Property

When looking at a commercial 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 you create a checklist of these items so that your property review and inspection process is suitably enhanced and professional Wide Info. The Asset Schedules: The property will contain many fixed and

moveable assets, and 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 both strength and substance to reimburse the landlord in situations where the tenant defaults under the terms of the lease.

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 contracts involved and how easily this can be achieved during sale.

Capital Expenditure: Major plant and equipment replaced in a commercial property are usually regarded as capital expenditure and are 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 conditioning plant’s air handling unit. Well-maintained property records will include a detailed capital expenditure register and the date the capital item was purchased. Purchasers of the property will be interested in the depreciation that this register provides against the cash flow in the coming years.