How to Succeed in Commercial Property Investment

If you’re considering venturing into commercial property investment, there are certain factors to consider. With the general election over and Brexit underway, the British economy is starting to feel more certain and secure for those contemplating a new business. Recent changes to tax laws and stamp duty have made residential property investment less attractive than it once was and many investors are shifting focus to commercial property, following their American counterparts. Property investment in the United States is huge, with many investors, with the help of their commercial real estate attorney, always on the lookout for a new cluster of properties to invest in during these uncertain economic times. No wonder it’s an attractive prospect. But what do you need to know before getting started and how can you build a successful investment portfolio?

What Is Commercial Property?

“Commercial property” is real estate used for business purposes, rather than residential. The term generally refers to buildings accommodating businesses, but large residential rental properties and land used to generate profit may also be “commercial property”.

There are five categories of commercial property:

  • Offices
  • Retail
  • Industrial
  • Leisure
  • Healthcare

These categories are broken down further into different “classes” under the Town and Country Planning (Uses Classes)Order 1987.

The category and class of a property are important as these will have implications for permitted use of the building and the amount of tax due.

Why Should I Invest in Commercial Property?

Purchasing and renting out a commercial property provides a consistent income stream, which you can use to fund future property projects or to provide a low-risk source of income. By developing a diverse property portfolio containing both residential and commercial property, you can spread the risk and minimise the impact of any one area of the market suffering a downturn. Many commercial property investors purchase buildings that can be split and rented to separate businesses, thereby spreading the risk further still. If this leads to issues, visiting The Law Offices of Roger W. Stelk is advised. Most property will increase in value over time. Commercial property allows an investor to make a steady income from rent in addition to the final profit achieved when the time comes to sell.

The ongoing management of commercial property is generally less challenging than that of residential property due to the professional nature of business-to-business transactions. Furthermore, you’re less likely to receive an urgent out-of-hours call from an office space, which will typically only be in use during daytime hours, than you are from a residential property.

Should an opportunity arise to boost profits by changing the use of a commercial building, this tends to be more straightforward to achieve than with residential property.

How Can I Succeed in Commercial Property Investment?

There are lots of different ways you can improve the chances of succeeding with your investments. Whether you look at an effective guide for buying commercial property, get help from someone who’s done it before, or do everything yourself, there are some things you need to think about before making the investment.

Set a budget. As with any investment, it is essential to assess your finances, set a realistic budget and stick to it. Commercial property can range from the price of a residential home to considerably more. The greater the cost, the higher the risk. Review your income and expenditures, consider what capital you have available as a contingency fund, decide on the level of risk you feel comfortable with and be sure to allow enough cash flow to fund future investments when setting a budget.

Don’t be afraid to make use of available finance options to keep the cash flowing and your portfolio growing. Commercial bridging loans offer a great short-term funding solution to keep your property investment plans moving forwards. These loans, typically available on a repayment term of four to 12 months, offer a quick injection of cash, allowing an investor to move fast and seize a great opportunity before the competition swoops in. The loan is secured against existing property and is repaid in full at the end of the term agreed; there are no monthly repayments.

Assess the ROI. When considering an investment, assess the projected return on investment (ROI). Two properties could take the same slice of your budget, yet one may be much more profitable than the other. The ROI will be affected by the potential of the building itself to generate an income, location of the property, socio-economic factors and the state of the local employment market. For example, a property that can accommodate a high number of tenants or is located in an area of growth is likely to be more profitable than small office space in a quiet, suburban community.

Consider the long-term. Many new property investors are keen to see results and focus too much on short-term investments. A good portfolio will have a mix of both short and long-term investments to ensure a consistent income. Commercial property investment is rarely a “get-rich-quick” opportunity.

When choosing an investment, be clear about how long you’re interested in committing to a project. Consider potential variations in income over time, for example, some businesses may operate on a seasonal basis, or plans for future developments in the area could influence the ROI from your property.

Lease or buy? Seek the advice of a commercial property lawyer to help you decide on the best course of action. There are pros and cons to leasing and buying.

Buying means you will own the freehold of the property, which means you will benefit from the security of ownership, lower monthly outgoings (mortgage repayments are likely to be smaller than a monthly rental fee) and any increase in the value of the property. However, if you plan to invest in more than one property, a considerable chunk of your capital will be tied up in the property long-term.

Leasing gives you the flexibility to move on from an investment if necessary, which can be an attractive benefit to those starting in property investment. You’ll also have less money locked into the property, freeing up capital to make additional investments. However, leasing is not secure; the landlord may choose to sell up or to raise the rent periodically. Furthermore, if you make any changes to the property during the period of your tenancy, you will have to cover the cost of restoring the building to its original condition should you choose to move on. Nevertheless, if you still prefer leasing commercial property over buying one, you can take the help of commercial solicitors who are available at firms like Kaiser Solicitors. Remember that there can be several benefits of hiring a solicitor. Firstly, they can provide replies to commercial property standard inquiries. Secondly, they can help you with the right planning permission for the use of your business and for any works that you intend to carry out. Thirdly, they can take care of the pay stamp duty. And lastly, with their help, it could be easier to obtain the landlord’s agent’s details.

Which type of investment? There are several different ways to invest in commercial property. Making a “direct investment” means buying an entire property or a share in it. For those just starting in property investment, this may not be possible, although financing options such as bridging loans can help an investor to raise the capital they need.

“Bricks-and-mortar funds” or “direct commercial property funds” are a common way to invest in commercial property. An investor contributes to a collective investment scheme such as a unit trust, enabling him or her to access opportunities that would not be available to smaller investors acting alone.

Commercial property investment can be an exciting and rewarding career. Take the time to conduct research, choose the right type of investment and consider all available financing options to help you along the way. By investing wisely, spreading the risk, diversifying and maintaining healthy cash flow, you can achieve commercial property investment success.