Commercial Property As An Investment
For those investors looking to spread the risk element amongst their assets, commercial property investment could make for a prudent addition to your current property portfolio.
The property market crash of 2007/2008 saw many investors lose significant amounts of money, yet prior to this, many investors (mistakenly) believed that property investment was virtually risk-free. Unfortunately, when it comes to financial speculation there is no such thing.
There are basically two main ways for an investor to make money from commercial property:
1. Rental income (letting your property to a tenant).
2. Capital growth (as a result of the property increasing in value).
Commercial property isn’t typically affected by what is happening in the stock market as are other types of investment opportunities, so for those seeking to diversify and spread risk, this option could be well worth considering.
Other than purchasing commercial property outright; which could be a barrier to entry for many people, another route to ownership is through what’s known as a “collective investment scheme” – for example a unit trust, Open Ended Investment Company (OEIC), or investment trust – harnessing the power of group buying to facilitate investment in a varied portfolio of commercial properties.
Commercial property generally can make for better investment potential than residential property – particularly in the UK where leases on commercial buildings in the capital regularly extend from 10-15 years. Contrast this with residential leases which typically run for between six months to one year at a time and the advantages will become clear.
Also, the average commercial lease generally attracts a significantly higher rental income than a comparable residential property. What’s more, the good news is that there are a number of commercial investment schemes which you can enter with around £50 per month, or a lump sum of £1000.
Indirect property funds are another form of collective investment scheme, only this type of scheme involves investing in shares from property companies that are listed on the stock market. As property shares are subject to fluctuation these types of initiatives do not attract the same benefits as direct investment schemes.
If you decide to invest in your own commercial property portfolio then expert advice is a must and it’s well worth spending some time scouring the Internet to see what commercial estate agents have to offer. When selecting commercial property, location is a prime consideration and here specialist local knowledge can be a tremendous asset. If you intend to purchase in an area you are unfamiliar with, then the Internet can be a terrific help, though there’s no substitute for “real world” knowledge.
Letting your commercial property shouldn’t prove too much of a problem providing you have chosen the location wisely. The key to success will be to minimise void periods as much as you can. In some cases you when you buy into commercial property you will ‘inherit’ sitting tenants – and whilst this issue could prove problematic with residential property, it is pretty much the norm with business units, workshops and warehouses. In the majority of cases – and with a professional management system in place – overseeing a commercial property portfolio can be far less hassle than with residential buy-to-let investments.
Or indeed you could compromise and savour the best of both worlds by investing in ‘shops with tops.’ These are, (as the name suggests), shops with one or two flats above them – handy for renting to business owners who would prefer to live on the premises.
Whichever type of investment you plump for, you will need to do your due diligence. Points to consider within your chosen location are:
- How good are the public transport links both locally and from out of town?
- Is there ample car parking space on or around the premises for staff and visitors?
- How busy is the location generally in terms of footfall?
- Are business rates reasonable? (Remember, you will be responsible for meeting the payments during any void periods).
- How easy is commercial property to let in your preferred area? (Do some research online and also contact local agents which specialise in commercial property lettings).
- Do any well known companies rent space nearby? (An excellent sign).
If you are serious about investing in commercial property then there can be good money to be made providing you are not looking for an instant return. But whether you are seeking to invest in commercial property or residential property, a comprehensive management system with which to monitor your portfolio is essential.
To this end the latest CAFM software can make managing your portfolio a breeze with ‘at a glance’ information that can monitor KPIs and help you maximise your assets’ potential and ensure your investments remain on track.
As with all types of investment opportunities or financial obligations, independent financial advice from a qualified professional source is essential before entering into a legal contract.