READ MORE: Singapore's most notable real estate agents under Another commercial property that realtors consider a good investment would. Benefits of Buying a Commercial Property with a Corporate Entity · No Capital Gains Tax in Singapore · Lower Corporate Tax Rates · More Tax Relief · Cheaper Cost of. Industrial properties in Singapore are generally classified into different categories such as Business 1, Business 2, Business Parks & Science Parks. There are. REPUTABLE BITCOIN WALLET
The LTA also provides for certain statutory implied easements in a development or estate for example, for the passage of water, electricity, drainage, sewerage, and easements of way. A restrictive covenant, which is a right attached to a particular piece of land allowing its owner to prohibit the owner of an adjacent piece of land from using that land in a particular manner. Sale of Real Estate Preliminary Agreements 9. What types of preliminary agreements are typically used in the sale of real estate and are they legally binding?
At the preliminary marketing stage, non-disclosure agreements are usually signed by prospective buyers. Shortlisted prospective buyers then usually enter into a memorandum of understanding or letter of intent with the seller, setting out the key terms and conditions of the sale. The terms of the memorandum of understanding or letter of intent are generally non-binding, except for the provisions relating to exclusivity, confidentiality, and governing law.
Sale Contract Briefly outline the typical main provisions of a commercial real estate sale contract and main real estate provisions of a typical share purchase agreement. Commercial Real Estate Sale Contracts The main provisions of a typical commercial real estate sale contract include: Covenants to buy and sell at the agreed purchase price and free from encumbrances.
Interim covenants and undertakings by the seller for the period between signing and closing, mainly to maintain the state and condition of the property as of the date of the contract as far as possible up to closing. Provisions for assignment or novation of tenancies, building maintenance contracts, and other real estate related contracts entered into by the seller. Provisions to apportion the revenues and outgoings for the property on completion between the seller and the buyer, and where applicable to adjust to reconcile the revenues and outgoings after completion.
Incorporation of the Law Society of Singapore's Conditions of Sale a set of standard terms and conditions commonly used in real estate sales. Parties can also opt not to incorporate the Conditions of Sale. Closing deliverables to be provided by both the buyer and seller. For real estate warranties and limitations, see Question Share Purchase Agreements: Real Estate Provisions The above provisions are largely incorporated and adapted into a typical share purchase agreement, except for those relating to assignment or novation of tenancies, building maintenance contracts, and other real estate related contracts.
In addition, in a share purchase agreement, it is not uncommon for a buyer to also seek a tax indemnity from the seller for any tax liability of the target company, for the period before completion. Due Diligence What real estate due diligence is typically carried out before an acquisition? Real estate due diligence typically covers the following: Legal due diligence. Mainly a review of title, tenancies and licences, electricity contracts, building contracts, building maintenance contracts, and legal requisition replies received from various government authorities relating to the property.
Technical due diligence. A survey of the title boundaries, gross floor area of the property, encroachments, unauthorised works, building and engineering investigations and presence, state of condition, repair and maintenance of plant and equipment included in the sale. Environmental due diligence. This typically involves soil sampling to identify the likelihood or existence of site contamination. Sellers' Warranties What real estate warranties are typically given by a seller to a buyer in the sale of commercial real estate?
What are the main limitations on warranties, for example, qualified by knowledge and disclosure? Limited warranties may be given by the seller, depending on the type of real estate and the buyer's bargaining position. However, a buyer usually conducts its own due diligence on the property. Warranties given by the seller typically include that: The seller has good title to the property and that it has the proper authority and consents if required to transfer title to the buyer on completion.
There are no encumbrances affecting the property and if there are, they will be discharged on completion. There are no claims against the seller, or that the seller is not in breach of any obligations, which would have a material adverse effect on the property. All licences and consents for the property have been obtained and are in force. All information and documents disclosed by the seller to the buyer are true, correct, and complete. The warranties are typically qualified to exclude claims where the subject matter of the breach has been disclosed to the buyer before the contract, through due diligence materials provided to the buyer or the buyer's own public searches.
Other limitations on claims for breach of the warranties are commonly imposed, including the period in which a claim can be made, and the minimum and maximum amounts of claims. Liability Does a seller have any statutory or other liability to the buyer in a disposal of commercial real estate? Apart from special express contractual terms to the contrary, a buyer purchases real estate in Singapore on a caveat emptor basis that is, let the buyer beware.
The seller has no duty to disclose physical defects, latent or patent, and the seller does not have to give a warranty about the condition of the property. The seller may give limited warranties in the sale contract see Question Environmental Issues Briefly outline the environmental legislation and potential liability in a purchase of real estate.
Is it common to carry out environmental due diligence and obtain environmental insurance? How is environmental liability typically dealt with in the sale contract? Under the EPM, the EPM director-general can require an owner or occupier of any premises to remove any hazardous substances likely to threaten the health and safety of any person or cause pollution of the environment. Under the EPH, the EPH director-general can require an owner or occupier of any premises to remove industrial waste from the premises to a disposal facility.
Further, for industrial property leased from JTC Corporation JTC , the lead government agency in charge of industrial property development and planning, a subsequent owner can become liable to JTC to decontaminate the site if the level of contaminants in the soil and ground water is found to be higher than the level assessed under a previous environmental study used by JTC to establish the baseline level. Environmental Due Diligence and Insurance It is common to carry out environment surveys involving soil sampling to identify the likelihood of or existence of site contamination.
Solicitors acting for the buyer also send legal requisitions to the National Environment Agency to confirm if any outstanding notices have been served under specific sections of the EPH. It is not typical to obtain environmental insurance in Singapore. Environmental Issues in the Sale Contract Environmental liability is usually addressed through environmental covenants and representations in the sale contract.
What types of liability can a buyer inherit relating to the real estate? Can a seller retain liability relating to the real estate after the sale? Buyer Inheriting Liability In addition to the potential liability for environmental clean-up requirements see Question 14 , an owner or occupier can also inherit liability for the following: Unpaid property tax payable to the Inland Revenue Authority , even if it relates to a period before completion.
Unauthorised works to the property which occurred before the purchase. The Commissioner of Building Control can require the owner or occupier of the building to demolish unauthorised works or carry out such work or alterations as may be necessary to comply with the Building Control Act of Singapore BCA and building regulations. Seller Retaining Liability If a seller or occupier has entered into private agreements with owners of adjoining land plots or government authorities, undertaking construction, maintenance, repair, or payment obligations for facilities on the property or adjoining properties, the private agreements will continue to bind the seller after the sale unless they are novated to the buyer.
When does the sale become legally binding? When does title transfer? Is notarisation required? When Legally Binding Parties typically become legally bound to proceed with the sale of real estate upon signing of the sale and purchase agreement or the exercise of an option granted by the seller. A deposit is typically paid by the buyer on entry into a legally binding contract for the sale and purchase of the real estate.
Registration of the instrument of transfer with the SLA is essential to effect the transfer of title. The instrument of transfer must be in the form approved by the Registrar of Titles and must save for limited circumstances be executed by the registered proprietor in the land register at the time of registration in wet ink. In addition, the execution of an instrument of transfer must be attested or executed in the presence of a solicitor. Where the transfer of the real estate is effected by way of a share sale, an instrument of transfer for the shares must be executed by the seller in favour of the buyer, and the relevant share certificates for the sale shares must be handed over to the buyer.
The electronic register of members maintained by the Accounting and Corporate Regulatory Authority must be updated to effect the change in shareholder. Notarisation Instruments of transfer are not typically notarised unless they have been executed outside Singapore. Who pays, what are the rates and are there any exemptions? Does it apply to the transfer of shares in a company holding real estate and at what rate?
Buyer's Stamp Duty BSD BSD is payable on a transfer of real estate on execution of the sale contract, based on the higher of the purchase price and the market value of the property. Who pays and typical tax rates. BSD is normally payable by the buyer, unless otherwise agreed. ABSD is not payable on a transfer of non-residential property, but there are detailed rules to determine what constitutes non-residential property for ABSD purposes.
SSD is payable by a seller on a transfer of residential property purchased on or after 20 February and sold within certain time periods from the date of purchase. More than three years: no SSD payable. Industrial property. Transfer of Shares A sale of shares in companies holding real estate incorporated in Singapore or with shares registered in a register kept in Singapore incurs stamp duty at a rate of 0.
If the shares are scripless, the transferee can apply for relief from stamp duty. A transfer of shares in a company is an exempt supply for goods and services tax GST purposes. Additional conveyance duty may apply to a sale of equity interests in a property holding entity whose primary tangible assets are residential properties in Singapore. This is to address the difference in stamp duty between the direct and indirect acquisition or disposal of residential properties.
Is tax imposed on a seller's profit or gain on a sale of real estate? What are the rates and are there any exemptions? Does it apply to a transfer of shares in a company holding real estate and at what rate? However, a gain from a sale of real estate in Singapore may be considered income and taxable if the seller buys and sells property with a profit-seeking motive or is deemed to be trading in properties.
The criteria used to assess if a seller is trading in real estate include the frequency of transactions, the reasons for buying and selling real estate, financial means to hold the real estate in the long term, and the holding period. Exemptions A gain from a sale of real estate in Singapore is generally not taxable, as it is a capital gain.
Transfer of Shares Singapore does not tax capital gains, therefore corporate income tax does not apply to capital gains arising from a transfer of shares in a company holding real estate. This is assessed based on the facts and circumstances of each case, including factors such as the seller's motive for the acquisition and divestment of the shares, period of ownership, and frequency of similar transactions. Are any methods commonly used to mitigate transfer tax liability on acquisitions of real estate, or tax on gains from the sale of real property?
Property acquisitions are often made through acquiring a Singapore incorporated private limited company holding the properties because stamp duty on a transfer of shares is lower than on a direct transfer of property see Question Further, a transfer of shares is an exempt supply for GST purposes.
Acquiring a company may result in the buyer being liable to pay additional conveyance duty see There is a risk that the tax authorities may construe an indirect acquisition of property through a share acquisition of a Singapore-incorporated company as tax avoidance under section 33A of the Stamp Duties Act of Singapore.
Is VAT or equivalent payable on a sale of real estate? Who pays? What are the rates? Are there any exemptions? A sale of a residential property is an exempt supply not subject to GST. The seller is responsible for accounting to the Inland Revenue Authority for GST, but the parties can contractually agree who is to bear the GST and it is common for the buyer to pay it. Exemptions Relief from GST may be available if the real estate is transferred as or as part of a going concern for example, a transfer of a leasing business with the leased property as an ongoing business , if certain conditions are met.
Property tax is imposed yearly on an owner of immovable property and land in Singapore, as a percentage of the annual value of the property. The annual value is determined by the Chief Assessor using different methods, depending on the property. A more common method is by reference to the annual market rent of a comparable property. Relief from property tax may be available if the property is used exclusively for public religious worship, as a public school receiving grants-in-aid from the government, or for charitable purposes or purposes conducive to social development in Singapore.
Climate Change Issues Are there targets or incentives to reduce greenhouse gas emissions from buildings in your jurisdiction? Is there legislation requiring buildings to meet certain minimum energy efficiency criteria? In , Singapore further aims to limit peak emissions to 65 metric tons of carbon dioxide equivalent by around , and to achieve net zero emissions by or around The Building and Construction Authority assesses and regulates the energy performance and environmental sustainability of buildings, through legislation and codes.
The Building Control Environmental Sustainability Regulations regulates the energy performance of buildings in Singapore, setting minimum green mark standards for building works involving the following where an application for planning permission is submitted on or after 15 April : A gross floor area of 5, square metres or more. Increasing the gross floor area of an existing building by 5, square metres or more. An existing building and a gross floor area of 5, square metres or more.
The Code for Environmental Sustainability of Buildings Code sets out the minimum environmental sustainability standard for buildings and administrative requirements and intends to establish environmentally friendly practices for the planning, design, and construction of buildings to mitigate the environmental impact of build structures. The number of green building projects in Singapore has leapt from less than 0. Are provisions relating to the energy efficiency of buildings commonly included in contracts for the sale of real estate or in leases for example, green leases?
The Building and Construction Authority has created a green lease toolkit. This includes schedules for both commercial and retail leases providing a list of standard clauses, with specific provisions for monitoring and improving energy efficiency, water efficiency, outdoor and indoor air quality, sustainable material, and waste management.
The schedules can be incorporated into a lease, to require the landlord or tenant to adopt procedures to ensure the building operates to the agreed level. While green leases remain relatively uncommon, they are expected to become increasingly popular as the relevant government authorities continue to encourage building owners to adopt them.
Already, developers CapitaLand and Lendlease offer green leases to some of their tenants in their malls, such as Bedok Mall and somerset. Briefly outline the typical security package required by lenders in relation to commercial real estate lending.
How are the most common forms of security interest relating to real estate created and perfected? Typical Security Package Typical security taken for real estate lending includes: A mortgage over the property. Assignment of insurance under insurance contracts taken out by the property owner and the proceeds of any claims under it.
Assignment of proceeds from sales or tenancies of units in the property and other related rights of the property owner, and a charge over the accounts into which the proceeds are paid. Debenture comprising a fixed and floating charge over all the property owner's assets. A charge over shares. Common Forms of Security: Creation and Perfection For mortgages involving registered land under the Torrens system, the instrument of mortgage must be in the prescribed form and signed by the mortgagor and the mortgagee.
To perfect a mortgage, it must be registered with the Registrar of Titles. A common law mortgage must be created by deed in English and is perfected on registration under the Registration of Deeds Act If the security grantor is a Singapore company or a foreign company registered in Singapore, any mortgage or charge over real estate must be registered with the Accounting and Corporate Regulatory Authority. Nominal registration fees are payable to register the mortgage and to register the mortgage or charge with the Accounting and Corporate Regulatory Authority.
What other real estate related measures do lenders typically take to protect themselves against default by the borrower? In addition to taking security see Question 24 , the main method by which a lender protects itself is appropriate provisions in the loan documentation, for example: Representations and warranties by a borrower commonly relating to the borrower's status and power, no default on the loan, and no borrower winding-up or insolvency.
Undertakings by the borrower to ensure that the creditworthiness of the borrower remains stable while the loan is outstanding. Covenants relating to the following: in a construction development financing, construction milestones and minimum disposal price imposed by the lender; a right for the lender to carry out periodic valuations, the borrower's undertaking to maintain a specific loan-to-value ratio, and the lender's right to call for the topping up of security; requirements to maintain financial ratios; and events of default.
Can lenders incur environmental liability? What measures do lenders typically take to manage potential environmental liability? Lender Liability A lender can be exposed to liability if it enforces its security over property and comes into possession and management of the borrower's premises.
Owners and occupiers can be liable under the EPM or the Sewerage and Drainage Act of Singapore if they cause, permit, or allow a prohibited activity, such as air, water, noise, and environmental pollution. Lender Protection A lender can choose to implement certain risk management frameworks to determine, assess, and manage environmental risk in their financings. For example, the Equator Principles produced by the Equator Principles Association, adopted by hundreds of financial institutions globally in project financing, to ensure that any projects they finance are developed in a socially and environmentally responsible manner.
Under these, a lender typically first assesses the purpose for which the loan proceeds are to be used and the category of environmental or social risk that the project falls into. Based on this, they can work with the borrower to propose measures to mitigate such risks, which the borrower is expected to implement and comply with during the life of the loan. Regular environmental reporting is typically required for the lender to keep track of the borrower's progress in meeting these environmental milestones.
Certain loans may also be structured so that loan pricing is linked to the borrower achieving certain environmental targets if the targets are hit in a particular year, this may result in a reduced margin, and if the targets are not met this may result in an increased margin.
Such measures work to incentivise the borrower to achieve the agreed environmental targets during the life of the loan. Lenders' Remedies Briefly outline the main remedies for lenders in relation to secured real estate if the borrower defaults on the loan. What is the effect of the borrower's insolvency on the lender's remedies? Lenders' Remedies In a loan default scenario, the remedies available to a lender are generally governed by the relevant agreements. Typically, a lender can accelerate the loans demand repayment of a loan before its stated maturity date by giving notice to the borrower on occurrence of events of default specified in the loan agreement.
Similarly, security documents typically provide that the security is enforceable on the occurrence of an event of default or if the lender has accelerated the loans. Enforcement remedies include possession of the mortgaged property, statutory power of sale, and receivership.
Effect of the Borrower's Insolvency Secured creditors generally stand outside a borrower's liquidation, and the appointment of a liquidator does not affect their right to enforce their security. Where the security is insufficient, they may rank as unsecured creditors for the balance. Briefly outline key additional issues for lenders in relation to construction and development projects.
When financing construction and development projects, lenders also typically secure such financing with: An assignment of the building contract between the property owner as borrower and the building contractor. Construction guarantees obtained by the property owner and the proceeds of any claims under them. Lenders also typically obtain undertakings from the sponsor to fund any cost overruns, top up any loan-to-value shortfall, and ensure completion of the development project.
Other Real Estate Financing Techniques Are other real estate finance techniques commonly used in your jurisdiction? For example, real estate securitisation and sale and leasebacks. Sale and leasebacks and real estate securitisation are commonly used in Singapore. Are commercial lease provisions regulated or freely negotiable?
Which legislation applies? The terms and conditions of leases are freely negotiated in Singapore. Are there formal legal requirements to create and execute a lease? How are leases executed by a company, a partnership, and individuals? The benefit of this is that the stamp fees of 0. A private limited company that bought commercial property to benefit from rental income may even suffer downturns in rental income.
Such companies are allowed to carry forward the unabsorbed trade rental losses and capital allowances to subsequent years to offset against the income of those years until the trade losses are fully utilised. Though very few and insignificant, the disadvantages of buying a commercial property under a newly incorporated private limited company in Singapore are: Administrative Burden But do note that the compliance requirements of a private limited company are much more as it is always governed by the laws, rules, and regulations under the Singapore Companies Act, which are much stricter.
Property Tax There is a flat rate of 10 percent for property tax on non-residential properties, which must be taken into account while doing the rental yield calculations. Property Loan Individual owners also get fairly good preferential property loan interest rates, which are not available to private limited companies.
But it cannot be used for any contribution towards the shareholding of a company or the repayment of any loan taken by the company to finance the purchase of the property. Set up your business in the city-state with the help of our incorporation experts to get your property faster!
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Close All you need to know about Buying A Commercial Property in Singapore Are you someone that has always had the urge to invest in commercial property, but has been held back by uncertainty?
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That means when you sell your commercial property, you do not need to pay any capital gains taxes. This helps real estate investors maximise their gains when buying and selling commercial real estate in Singapore. Key factors to consider when buying a commercial property in Singapore: Factor 1: What type of commercial property should I buy?
This is the first question that most investors will ask themselves. Should I buy a retail commercial property in a CBD-area shopping mall? How about an HDB shophouse in a heartland district? Or perhaps I should invest in an industrial warehouse? Different types of commercial properties will have varying expected rates of return, different price points, and their own unique strengths and risk factors. These shophouses are quite limited in supply. They command a premium over other shophouses, and over other commercial properties in general, because they are officially conserved by the government.
Many of these shophouses are also located in the Central Business District CBD , which makes them popular choices to rent amongst small companies and trendy startups. Areas like Chinatown and Telok Ayer are lined with these conserved heritage shophouses, many of which are rented out for princely sums to eateries, yoga studios, startups, and other businesses.
Since these shophouses are in high demand, you can usually expect to earn relatively good rental yields. With their conserved status, limited supply, and popularity amongst investors, such shophouses also hold their value well. Depending on your entry price point, investors typically can also typically expect to earn attractive capital gains.
However, the quantum total purchase price for such heritage shophouses are high. Also, depending on the specific shophouse you intend to purchase, there may be restrictions on their usage according to urban zoning plans. Some shophouses are designated for commercial use only, while others can be both residential and commercial. Factor 2: Location, location, location. Where is your property located? Location will have a vital role in determining the returns you make from your commercial property.
It will also influence the kinds of leaseholds that your commercial properties will have. Is it within walking distance? If not, , are there nearby bus stops, and how far is the nearest stop? Does the property have on-site parking?
If not, how far is the closest car park, and is it easy to get parking spaces? Corner units: Commercial properties situated at corners of intersections whether these are road intersections, or intersections in shopping malls tend to be more valuable because more people will pass by the shop.
Traffic: How many people will walk by the property on an average day? Is the property situated right by a busy street or road? Do lots of vehicles pass by the property every day? If so, you can command higher rentals because such properties have higher visibility. Surrounding developments: Is the property situated in a well-developed neighbourhood? Are there shopping malls, or office spaces, or lots of attractions nearby that will draw a natural amount of regular foot traffic?
For instance, Paya Lebar Quarter is an integrated working-living-lifestyle hub that has offices, malls, eateries, and residences packed into one location, which draws large numbers of people there. Rental yields in such a location will therefore be high since commercial shops are in high demand.
Commercial properties are zoned according to their intended use. If you purchase a commercial property and wish to change its intended use to something different from its original use, you may need to apply for planning permission from the URA first. Instead of running it as a shop, you decide you want to convert the place into a commercial music school.
Leaseholds for commercial properties typically range from 30 to 60 years. This is much shorter than that of residential properties, which range from 99 year leases to freehold properties. New commercial property launches are usually 30 year leaseholds. This helps make industrial sites more affordable for business owners in Singapore. It also gives flexibility for the government in terms of redevelopment of land Factor 5: Can I get sufficient financing to purchase my commercial property?
Most buyers will apply for bank loans when buying their commercial property. If you purchase a commercial property via a company that is GST-registered, you can claim the GST portion on the purchase. Frequently asked questions on purchasing commercial properties i. This applies even if you already own a residential property. Industrial properties include factories and warehouses basically buildings intended for industrial activity like manufacturing, storage, chemical refining, etc.
A special purpose vehicle for holding commercial properties has more flexibility while transferring ownership, as one can simply sell the shares of the holding company to potential buyers without incurring additional Seller Stamp Duty if property type is industrial property. With this special purpose vehicle, one can have multiple owners of the property equated by the number of shares each holds in the company which will lead to less dispute of profit-sharing in the future.
Potential drawbacks to buying commercial properties Some downsides to purchasing commercial properties instead of residential are the higher bank interest rates commercial property loan rates are higher than Residential rates , as well as the fact that banks may have more conditions that need to be fulfilled before a commercial property loan can be provided.
In addition, while commercial properties potentially have higher rental yields, they also have higher maintenance and utility costs, which buyers will have to take into account. If buyer's use a corporate entity that is GST registered And perhaps most importantly, while you can use your savings in your CPF account to pay the downpayment and mortgage for a residential property, you are not allowed to utilize your CPF funds to purchase a commercial property.
Things to consider before buying a commercial property Types of commercial property As explained above, there are different types of commercial properties in Singapore. From shopping malls to factories to heritage shophouses, each type of property has its own risks and benefits, and can also vary widely in cost. Choose a property type that fits your initial budget, and ensure that it has the characteristics that you want or are most comfortable with.
For example, if you are looking at investing somewhere in Woodlands or Punggol, the only types available to you may be Industrial properties with 60 years of leasehold. Meanwhile, choosing commercial property in densely populated residential areas may be desirable, but be aware that developments in the area may change, such as if there is an en-bloc sale, which could affect human traffic as, by extension, your business.
If you are looking to purchase a commercial property to rent out, then location is also a critical consideration. Properties located in highly dense areas that are also close to MRT stations and bus terminals will certainly be subjected to higher demand from potential retail tenants. Financing Most banks provide up to 90 percent loan of the property value, which is higher than what they would provide for residential properties up to 75 percent.
However, since Business Owner cannot utilize your CPF funds, buying a commercial property could still represent a higher initial cash outlay. Moreover, the loan-to-value LTV could be lower if you are buying for investment purposes because banks consider commercial properties to have higher risks. In addition, interest rates for commercial properties are higher than home loans, even though the loan tenure for commercial loans is also shorter capped at 30 years , compared to home loans up to 35 years.
Typically if the borrower is an operating company, the assessment will be on the company financial profile while buying under an individual will be subject to the Total Debt Servicing Ratio TDSR calculation Leasehold Like any residential property, leaseholds for commercial property typically range from 30 years leasehold, year leasehold, years leasehold, and Freehold.
Nowadays any commercial property's new launch projects are typically 30 years leasehold, the reason being in the year , the Ministry of Trade and Industry or MTI announced that more sites with shorter tenure and smaller sizes will be released. The reason for the shorter leasehold is to make industrial sites more affordable for business owners in Singapore and to curb investors speculating in the commercial properties space where most would prefer industrial properties with longer leases, this also gives flexibility for the government in terms of redevelopment of land.
It is usually also easier to land a mortgage with a bank for Industrial properties with a longer leasehold. Thus compared to your residential purchase, commercial property depending on the seller if they are GST-registered, potential buyers might incur GST on their purchase. Additional costs Other costs need to be taken into consideration as well.
Additional costs might include maintenance and renovation fees.