Starting Out in Commercial Property Investment

Thinking of building an investment portfolio in commercial property? In this article we are going to look at some important things to think about.

The area of commercial property covers several fields. There are retail properties (shops and stores); office spaces; and industrial and manufacturing buildings. Investing in each of these three kinds of commercial property have their own benefits and risks, and it's important to be aware of them before deciding which investment direction you are going to take.

As well as these three distinct market types, you also want to consider the needs for these different properties in the geographical area in which you plan to invest. Many people start off buying properties in their local area. Have local knowledge is essential before investing, as it will guide you to the viability of each kind of property.

Find out which kind of property is in demand, which is more stable regarding tenancies, and what the rental rates are likely to be in each. For example, while there may be more of a shortage in industrial properties, they tend to have less demand in your area so office space would be a better investment. Let the number crunching do the talking.

Along with viability, you will want to consider what costs will be involved in refurbishing and maintaining the building. There will always be a market price, the maximum someone will be prepared to pay. Don't believe, especially today, that someone will be prepared to pay extra to meet your costs, because you have spent extra on a fabulous refurb. Bottom line is find out what the average market rents are in your area and plan to meet them, or be slightly lower. Better to have easy to rent properties with long term clients, than great looking but expensive property.

Budget in all your costs. Different spaces will have different maintenance contracts. Be sure that what you plan to charge will cover all your costs. Also plan in contingencies for empty space, or having to offer a lower than planned rent to keep your tenant if they go through temporary difficulties. Better to have a tenant paying less, than no tenant at all.

Parking spaces. Make sure that your space has enough parking spaces and access for deliveries etc. While it may not be so important for retail premises to have parking for the owner and staff, in industrial spaces it is expected. Is the property easy to find? All businesses want easy access and easy to find addresses. Location is as important in commercial properties as it is in residential. When you are viewing a property, think of it in terms of a prospective tenant as well as a client of that tenant.

What id the surrounding area like? It may be cheap because the area is run down, public transport is not available etc etc. If you are looking at industrial premises, remember that some of their staff will be using public transport. Is it available? Businesses generally care about presenting a good front. If the building and surrounding area don't present the right image, you've lost a percentage of your tenants straight away.

Is the building practical for it's proposed use? Some building reappear on the market regularly. They have not been built with their use in mind and will always be a problem. Make sure that the building is functional and practical, and has all the amenities that would be expected.

Does the property meet all the latest safety requirements? With legislation changing every few years, be one hundred percent certain that you won't be landed with unexpected refurbishments. Different kinds of commercial property are subject to different regulation. Does the property you are looking at investing in meet them? This is when you need to get an expert in. Better to pay someone now to confirm, rather than pay down the line.

As all investments, investing in commercial property carries a risk. Being informed and making decisions based on sound financial facts will lessen the risk and provide you with a profitable long term income. Remember, follow the numbers.

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