In periods of economic uncertainly, investors increasingly flock to bricks and mortar as the safest form of investment. In recent times, residential property has offered unprecedented opportunities for capital growth, and BTL landlords have enjoyed rising rental yields in addition.
Based on your own experience as a homeowner, the step to becoming a residential property investor may not seem all that daunting. After all, it’s just another flat or house to look after. That said, being a landlord is a competitive business and the bigger your portfolio, the more tenants there are to manage, the more buildings there are to maintain and the more involved the entire process can become. Is it still worth doing?
Choosing to invest in a commercial property portfolio may be a smart alternative. Commercial rents can yield attractive returns on your investment, with much less hands-on effort required on your part. Here are some tips on how to make commercial property investment work for you.
- Choose your market sector
The commercial property sector is huge, ranging from retail outlets to warehouses to offices, hotels, hospitals, schools, factories and much more besides. Each sector has different requirements and it doesn’t take a genius to work out that the skillset required to successfully invest and manage each type of commercial property will vary widely. You need to make a choice.
Select an industry that you are familiar with. If your background is in retail or hospitality, chances are that you’ll have a better understanding of what tenants require from the premises than if you purchased an industrial building. Stick with what you know best and build up your knowledge base from there.
- Learn to think like your tenants
The more you understand the mindset of your commercial tenants, the more likely you are to make a success of your investment in commercial premises. If you were to consider a residential property purchase, you would be asking important questions regarding location, number of bedrooms, building condition etc. Commercial property decisions are no different.
If you’re thinking of buying retail units, for instance, consider their geographical location, their position within the town/village and where most footfall occurs. Local knowledge can go a long way, so focus your search in an area you know, or obtain solid, trusted advice from a local surveyor to identify the best opportunities.
- Work with a good commercial surveyor
Property agents are a good source of local information for what is available in the marketplace, but their focus is on closing the deal. If you think you’ve found the right property – and especially if you’ve found a bargain – it is absolutely essential that you instruct a surveyor to take a close look at the asset. Caveat emptor (buyer beware) applies to all property transactions, so don’t take the risk of buying blind and hoping no nasty (and invariably costly) surprises crop up once you have the keys.
Choose a surveyor with solid commercial experience in the type of property you’re thinking of buying. Discuss your plans for the property and your investment strategy to obtain their professional feedback. Ask them to carry out an in-depth, impartial analysis of the building’s physical condition.
“A bespoke commercial property survey is absolutely vital before you purchase or acquire any sort of building. Whether you buy on a freehold or leasehold basis, you become responsible for the maintenance and upkeep of property, so it is essential that you understand the current condition and state of repair before you buy.” Chartered building surveyor, Tim Greenwood.
- Seek specific legal advice
Good legal advice is key in any property transaction, especially when it comes to potentially complex issues surrounding commercial premises, buildings or land. Instructing a competent commercial conveyancer will ensure that your transaction can proceed with maximum smoothness and speed, whether you’re investing in freehold or leasehold, and any legal issues can be spotted and sorted out before they become an obstacle and hold up proceedings.
Importantly, your solicitor should also have experience in advising in the vast and complex field of commercial leases, providing expert guidance in how to navigate landlord and tenant relationships with regard to leases and licences, rent reviews and renewals, service charges, dilapidations, default and forfeiture, to name a few.
Finally, it’s worth pointing out that no matter how carefully you plan and execute your investment strategy, there’s always a risk that things may not go according to plan. Spreading your options to mitigate any potential risk, and have get-out clauses and a Plan B in place, just in case.