Just like any form of investment, commercial property investment comes with significant risks as well. It is important that you do your homework to make sure your efforts will be worthwhile.
Just like residential investment, a well positioned commercial property can provide a rewarding experience. Maximise your investment and reduce potential risks by considering the location, affordability, return and value, the history of the property, its age, maintenance and security when investing in a property.
The location is perhaps the most important in terms of purchase costs and potential tenants. Economic changes affect commercial property more so than residential property and therefore selection areas that will be less prone to economic conditions is a further consideration in your selection process.
For example, a warehouse located near a transport hub is likely to be vacant than a warehouse located in a regional count area if economic conditions worsen. Like any property investment things you should consider are whether the investment will be affordable even when interest rates and other costs increase.
Being aware of changes in interest rates, levies, utilities, security and maintenance costs are important. Knowing you can pass the increases on becomes more important.
Commercial properties generally offer higher returns as both gross yields are higher and outgoings are paid by the Tenant. Commercial property can also have higher risk, as the lead time between tenants will be longer and in poor economic times the lead time may extend further.
The longer the premises remains vacant the greater the possibility of a decline in value. However, a well constructed lease that has annual and market review clauses may lead to an increase in the value of the property. Dealing with real estate agents that know commercial property and how it operates will reduce the risk.
Before investing on a property, you should also research on the costs of utilities and if there are backups or precautions from failures. It is important that the water, gas and electricity supplies are reliable. After a proper building survey, find out the costs of future maintenance especially that maintaining a commercial property is more expensive than maintaining a residential one.
Understanding the limitations of the building and zoning of the property will lead to an understanding what can be done on the property. This can ultimately drive higher returns in both rent and growth subject to the way the building can be used.
Check the public transport and parking availability to attract more customers. If the property is located where crimes usually happen, you should undertake security measures or even befriend the local police. For those who are investing in a building, you may want to check if there are hidden infrastructure, water or electrical defects by speaking with professionals. Repair for defects can use up your funds in the future if you are required to pay for them.
Lastly, it is important to check government permits such as approved building and development plans. Find out the zoning laws in the area and obtain certificates that show subdivision history, easements and property issues like land contamination and road widening, if any.
It’s best to research about the property and its surrounding area to understand what you are investing in and minimise any potential risks. Make sure you use the services of an agent that understands commercial property.
If you would like to know more about commercial property investment, you can click here to know more about Chan & Naylor services. You can leave your details here and we can schedule you for a free consultation. We’ll contact you to explain more.
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