18 June 2021/ sale_commercial_property_guide

10 Underrated Tips for Successfully Purchasing Commercial Property

If you're interested in buying commercial property, you need to know several things before jumping in. It's important to do your research before making that purchase, or you could wind up with a troublesome property that comes with regrets rather than profitable returns. So we've put together a list of ten simple yet surprisingly underrated tips that will help you buy the perfect commercial property.

Get specific

If you're looking for a property, you might think casting your net wide is the best approach. But in the world of commercial property, it pays to know the market you're choosing to purchase in. On paper, some investments can look far less (or sometimes more) appealing than in reality.

For example, a retail unit could sit on a high street in what appears to be a busy location, but a nearby development could be stealing all its customers. On the other hand, a potential food unit may seem to be in the middle of nowhere, but it may have a strong customer base of delivery drivers and holidaymakers.

To maximise your profit potential, search within areas you know well or have researched thoroughly. Using a tool like Realla can help, as you can filter by location and property type to find a commercial property that ticks all the right boxes.

Look into alternative routes to buying

Sites like Realla make it simple to find what you're looking for, whether that's an office, industrial property or retail location. But if you're looking for something niche or working with a much smaller budget, you may have to get a little creative to find the ideal commercial property. Property auctions are excellent places to find bargains, as many of the properties on sale require a bit of love to get them looking their best again.

Understand mortgage limitations beforehand

While commercial buy-to-let mortgages exist, they're typically much less generous than residential loans. On average, you'll need to put down at least a 25% mortgage, as most commercial loans will only cover up to 75% of the property's purchase price. This means that your budget may need to be reassessed before you buy, which could prompt you to look at different locations or asset classes.

Make connections with local estate agents

It's particularly helpful to speak to agents directly if you're looking for something specific, such as premises with a license suitable for a cinema or leisure centre. This is because some types of commercial property don't come to market very often, and it's wise to know someone on the inside who can give you an advance heads up when they do. And even if your chosen agent can't help you, they may have connections to others who can, especially if you're after something that requires specialist advice.

Prepare for a longer timescale

You might consider yourself an experienced property investor after getting a few residential homes under your belt, but the commercial property purchase process can be very different. For example, you may need to extend the leasehold, apply for a change of use licence, or jump through other legal loopholes to bag your property.

Even after you've finalised the purchase process, it's likely to take a little longer to find the right tenant in comparison to being a residential landlord – especially if you've got a niche property. So make sure you've got a separate, robust cash flow from other ventures that can cover your expenses until the ideal tenant comes along.

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Research the wider area

You've found a property that ticks all your boxes. There are no legal complications, and all it needs before new tenants move in is a quick lick of paint – sounds perfect, right? But have you considered the location? Where the unit is situated could make a huge difference on your tenants' chances of success and, ultimately, your own profit margins.

Take a restaurant, for example. The unit in question may be bright, airy, spacious and have modern equipment already in place. But if it has no parking nearby and no easy public transport links or is located in a dangerous area where nobody will want to park, you may struggle to attract customers. Also, consider the area's ambience and whether it's likely to attract high levels of footfall. For example, a sandwich bar within easy reach of a busy industrial estate could be ideal, but a bar is better suited to a bustling high street.

Look into alternative locations

Covid-19 has had a big impact on the real estate world, but it's also opened up new opportunities. Thanks to the rise in popularity of food delivery apps, which attract around 11 million users per year in the UK alone, a prime location is no longer as important for all food businesses. As people embrace remote working long term, out of town locations can serve work from home crowds looking for a lunchtime treat or fancy indulging in a bit of suburban retail therapy without travelling.

Understand what you're committing to

Commercial properties can be incredibly rewarding for investors, generating long-term, stable returns. However, they're very different from residential properties in every way, from what they can be used for to the types of tenancy agreements considered the industry standard. Therefore, you must do your research and understand what will be expected of you as a commercial landlord before taking on the challenge.

Get the right insurance

As 2020 highlighted, it's vitally important to protect yourself against every eventuality as a landlord. Sorting out the correct insurance for your property should be a priority, and it's wise to check out what a typical premium is likely to set you back before you purchase. Insurance may also be trickier than you'd expect to secure or cost a lot more than you've budgeted for, so it's something any investor should be aware of before handing over any money. For example, the riverside eatery you're eyeing up may be considered a huge flood risk to insurers, making the premiums unrealistically affordable with your budget in mind.

Purchase through a reliable platform

If you're just starting and are overwhelmed by choice, using a platform like Realla can simplify the process. Find properties in your chosen area and filter by your preferred property type to find the perfect investment for you. Get your search started today, or check out our other guides for more handy information.