5 things to consider before buying a commercial investment
Commercial investing can be a tricky business. That said, buying a commercial property can be an extremely wise investment. Rental yields are much higher in commercial than they are in residential and can therefore result in higher return on investment. Like with any type of property investment, investing in commercial property comes with risks. If you’re looking to invest in commercial, here are a few things to consider before taking the plunge.
Higher vacancy rates in commercial property
In the current property climate commercial properties have higher vacancy rates than residential properties. When buying a commercial property you must be prepared to not receive rental income for a period of time. Future high rental returns can compensate for the temporary loss, so it’s important to calculate predicted future rental income, while at the same time weighing up risks.
Maintenance costs
Commercial properties generally require more maintenance than residential properties. More tenants means more wear and tear. It’s important to consider and calculate the potential costs involved in maintaining your property over time.
Investment goals
For all types of investments it’s important to set a long term goal for your investment. First of all, why are you buying? Secondly, what do you expect to get in return? Your long term goal might include a certain amount of capital growth over a period of time, or a certain amount of cash flow.
Buying in the right place
Knowing the property market is an integral component to predicting trends and can therefore assist you to invest in the right place at the right time. The best time to buy is when prices are low and value is on the rise. Predicting market trends can be difficult, however there are some tell tale signs to knowing where a property boom might occur. For example, expansion of infrastructure in a specific area indicates growth and means that demand is on the rise.
Choosing the right tenants
Carefully hand picking your tenants is important for the security of your commercial investment. It’s important to choose tenants who will minimise impacts on the property, and in turn keep your maintenance costs to a minimum. It’s also important to take into consideration how appealing your tenants may be for future prospective buyers, in order to maximise capital gains.
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