Investing in commercial property such as warehouses, retail outlets and offices can be a good way to get a foot in the door in the world of real estate investment. In addition, being armed from the start with the right information, advice, attitude and understanding can help you to make a success of your investment and build on it as you go.
Tips for making your commercial property investment work for you
1. Understand the influencing factors
The commercial property market has some similar drivers to the residential one (such as population), but it also has some additional influencing factors involving local economic conditions. Some of the demand drivers in the commercial world include:
- – Location – an area with a strong local economy is likely to increase demand for commercial services and properties.
- – Population and demographics – these factors will also affect demand. For example, a region with strong population growth and a high proportion of younger families is likely to lead to an increased demand for food outlets, retail shops and childcare centres, while one with an ageing population may result in a higher demand for retirement accommodation and health services.
- – Local infrastructure – the construction of roads and other major services can lead to greater demand for commercial properties. It’s also important to check out local plans for future infrastructure in the regions you are interested in.In any case make sure to do plenty of research on regions where you are considering investing!
2. Get to grips with the practicalities and financial side
There are a number of aspects to consider here, such as:
– Property size, age and condition – these factors are likely to have implications for rental yields and for capital growth. For example, a larger property may be more difficult to lease than a smaller one, and in the same way an older property may face stiff competition from construction of newer and more modern facilities.
– Lease agreements – commercial properties usually come with leases that can run for up to 10 years, which is considerably longer than most residential lease agreements. It’s very important to fully understand what is contained in your agreements in terms of rental amounts, terms, renewal options, and who is responsible for what in terms of maintenance, insurance, running costs and other issues.
– Securing good tenants – make sure to take your time selecting suitable tenants (known as ‘lessees’ in the commercial world). This involves checking out their capacity to pay the rent on time and their commitment to their obligations.
– Hiring a good property manager – a professional property manager is vital to ensure the smooth running of your investment property.
– Finances – some of the considerations here include access to finance, current interest rates, your capacity to make payments on time, and budgeting for capital repairs and potential vacancies.
– Legal matters – make sure to gain an understanding of the rules and regulations regarding tenancies and to get sound legal advice upfront.
3. Have the right attitude and approach
In any commercial property investment you make it’s important to have a business-like and professional attitude and to treat your lessees as business clients. You should also work towards taking on an objective and practical mindset when seeking out properties to add to your portfolio, and to remain open-minded to opportunities that come your way.If you wish to buy investment property and would like professional assistance to get started, get in contact with our team at Burgess Rawson.