Purchasing a commercial property can be a lucrative investment if you buy wisely. But to ensure that your investment has a high return, it is crucial to carry out due diligence. Thorough research helps to ensure the investment meets your financial goals. Although the returns from commercial properties can be huge, the risks are also greater.
How can you ensure that you make a wise investment with profitable returns? What should you do to avoid making critical mistakes in purchasing commercial property?
This article contains our top ten tips for investing in commercial property and reaping the financial rewards.
What is Commercial Property Investment?
Investing in commercial property refers to purchasing one or more commercial buildings to generate a profit. Some examples of commercial properties are offices, shops, large high street stores, warehouses and restaurants. You could buy commercial property and rent out the space to have a regular income or develop the building to sell for a profit.
10 Top Tips for Successfully Purchasing Commercial Property
Here are ten handy tips on how to locate and invest in the perfect commercial property.
- Carry out due diligence
The basis for any successful commercial property investment is conducting thorough research. Therefore, it is vital to look at long-term trends for property values in the area. Also, it is essential to consider potential footfall, nearby developments, and potential for future expansion.
Because the risks can be greater when purchasing a commercial property, it helps to know the market well. If you are venturing into a new market, then thorough research is even more critical.
- Never forget location
It’s a cliché when buying property, but you must remember “location, location, location”. So here are some questions to ask when you’re considering to purchase a commercial property:
- Do you expect commuters to drive or get public transport to the building?
- What are the public transport links like?
- Are there businesses nearby that are competitors?
- Would an out-of-town location be more cost-effective for dealing with clients remotely?
- Do zoning laws allow for expansion or redeveloping the property?
- Is there solid potential for growth in the area?
- Is the area safe?
The ideal location depends on the type of business that will operate in the building. For example, a sandwich bar would be ideal near a large industrial park. However, a restaurant may struggle in an out of town location where there is little footfall in the evenings.
- Understand financial obligations
Purchasing commercial property requires a larger down payment than buying a residential building. Typically, commercial mortgages only cover up to 75 percent of the price. Therefore, you will need a down payment of at least 25 percent. You may also need to submit a business plan before any lender approves a commercial property mortgage.
In addition to initial costs, there are financial commitments regarding upkeep and maintenance. So, it’s a good idea if your budget also includes funds to cover any unexpected problems.
- Connect with local commercial property agents
Working with a solid team of commercial agents can help make your commercial property purchase a reality. Commercial properties are sometimes harder to come by than residential homes. Also, if you have specific requirements, it may take time to locate the perfect investment property.
A trusted and experienced commercial agent, such as RIB, can help you find what you are looking for.
- Keep on top of trends
To successfully purchase commercial property, it’s vital to pay attention to current and future trends. For example, the COVID-19 pandemic forced millions of office workers to work from home. Also, contactless food deliveries became the norm. This shift in work patterns changed the way many businesses operate and the type of building they require. This change meant that suburban locations for small shops, cafes, and salons became more profitable investments as people wanted to stay closer to home.
- Make rational decisions
When purchasing a commercial property, avoid making decisions based on emotion. Careful research is always the foundation of the most profitable investments. If due diligence suggests that the property is too risky, it is best to walk away. It is also vital to remember that seeing a significant return on a commercial property investment can take longer.
- Understand what is expected from commercial landlords
Along with greater rewards from investing in commercial property comes greater responsibility. There is a significant difference between letting to commercial tenants and residential tenants. In a large commercial property, there may be multiple tenants to manage. Then there are responsibilities regarding the upkeep of the building and maintaining communal areas.
In addition, commercial leases tend to be longer, sometimes up to ten years.
This is why many commercial landlords chose a professional property management service, where expert property managers take over these responsibilities.
- Have the property surveyed
Buying a commercial property is a significant investment. Therefore, before closing the deal, it is crucial to have a full professional survey done. Only a professional survey will confirm the actual condition of the property and uncover any potential problems.
For example, the construction of commercial premises differs from residential buildings. Also, there may be more stringent building codes regarding a building that is used commercially. The survey can also help you plan for necessary repairs, upkeep, and ongoing maintenance. So, it helps to limit your liability for repairs.
- Focus on flexibility
A successful long-term commercial property purchase usually happens when you buy a flexible property. For example, markets have downturns, or specific commercial sectors experience rapid growth. Therefore, it makes sense to look for a commercial property that can be adapted for multiple uses.
For example, many large department stores are undergoing a transformation in the UK high streets to repurpose them and protect investments. Before buying a large commercial building, check to see if you can change the use class, modify the building, or adapt it to meet new trends.
- Purchase commercial property with an exit strategy
At some point, there may come a time when you need to sell your asset. Having an exit strategy from the start is the best way of ensuring that you can sell the building at the optimal time rather than having to sell it under duress.
In some cases, you could purchase a commercial property with the plan to sell it after a certain number of years. Or, in other cases, you could decide to sell based on specific market conditions. In any case, know what you will do if you need to offload your asset and protect your investment strategy.
Buying Commercial Property in London
If you’re looking to buy a commercial property in London, our commercial property team can help. At RIB we have a wide selection of commercial properties available in prime London locations such as Soho, Fitzrovia, Covent Garden, Marylebone and Regents Park. Contact a member of our team today using the contact details below for more details about available properties or browse our commercial properties online.