12 March 2020/ sale_commercial_property_guide

Considering a Commercial Real Estate Investment Property?

Investing in commercial property can be a great way to grow your capital. But you’ll need to know what you’re doing if you’re to maximise the return. Because the property market can be unpredictable, limiting risk is key – but how exactly can you do this? Here are six steps to choosing the best commercial property.

How do you buy a commercial investment property?

1. Plan your investment strategy

This shouldn’t come as a surprise. Once you’ve decided you’re ready to buy a commercial property, you should think carefully about how best to go about it. Consider your long-term goals and the types of investments that will allow you to achieve them. You should also put some thought towards how you’ll grow your capital over time, and how you’ll limit risk. If you don’t, you may get carried away and buy a property impulsively, only to regret it further down the line.

When you’re planning your investment timeline, set a target deadline for when you’d like to see a return on your investment. Of course, you may not have a lot of control over this, as it will need to be realistic, but it’ll help you work out how long your money will be tied up for. Once you’ve done this, you’ll be able to plan your finances, invest accordingly and make sure you can cover your expenses until you make a profit.

2. Collaborate with knowledgeable professionals

Even if you’re an expert in real estate, you should take the time to consult other specialists. You may want to enlist the help of commercial property agents, appraisers and inspectors, as well as legal consultants. Depending on your finances, you might need to speak to official lenders and mortgage advisors, and once you’ve got the keys to your property, you could use the services of a local builder or engineer.

The people you work with should share your ambitions for the property and be committed to helping you succeed in your plans. Where you lack experience or expertise, they should be able to provide their insight, while you fill in any gaps in their knowledge. This way, you’ll have a much higher chance of securing a great property at a fair price.

3. Start researching the area

Whether you’re buying a property in your hometown or further afield, you should spend a considerable amount of time researching the location and doing your due diligence. Learning about the region’s property market and any upcoming developments will pay off in the long run. Also, try to find out as much as you can about the demographics living and working in the area, the property vacancy figures and value growth rates.

If you’re not sure where to start, government and council websites are often a great source of information. You’ll be able to check nearby development proposals and get in touch to discuss any queries in more detail. Alternatively, you could consult a buyer’s agent to analyse the market for you.

4. Search for suitable properties

The next step is to start looking at real estate. By this point, you should have a good idea of the type of property you’d like to invest in. Ask yourself the following questions to help narrow down your search:

  • Where would I like the property to be?
  • Am I targeting a particular market and what sort of property will they be looking for?
  • Am I willing to carry out renovation work?
  • Am I willing to carry out ongoing work for a property that needs a lot of maintenance?
  • Do I want a property with outdoor space?
  • Do I want a property with parking?

Once you’ve created a shortlist of possible properties, there are a few questions you can ask to make sure you select the one that will best suit your ambitions:

  • How much will any renovation work cost?
  • Will the layout suit potential tenants?
  • Does the interior benefit from a lot of natural light?
  • Is the building eco-friendly and how could I reduce its environmental impact?
  • What is its potential resale value?

5. Review your property choice

This is your chance to do some final checks before you invest in a property. First, make sure your proposals are possible. If you need to carry out renovation works on the building, confirm you’ll be able to get approval or planning permission for it. And if you’d like to divide the internal space into separate rooms for different teams or businesses, you’ll need to check your proposed layout makes sense. Practically, will you be able to put up partition walls, install the right equipment and make any other changes whilst adhering to health and safety regulations?

Secondly, make sure you’re getting the most for your money. Compare the site you’d like to buy with similar buildings nearby to work out whether the asking price is fair. Then, do some local research to find the expected future value growth of your property. Organisations such as Realtor.com, Deloitte, CBRE and Mordor Intelligence can help you do this.

Finally, if you’re planning to invest in several properties, consider choosing a variety of different types. This minimises risk because if one site suffers due to changes in the market, you’ll still be able to make a profit from your other locations.

6. Make contingency plans

No investment is free from risk, so you should prepare a ‘Plan B’ in case your first one becomes impossible. Think about how you could repurpose the building, should the worst happen. Is there a way to gain an income quickly without losing too much money? If not, how will you sell the property for a good price?

To reduce the chances of ever needing to put your Plan B into action, you should also create a contingency fund. Once you’ve put aside enough capital to cover your outgoings until your break-even point, make sure you save some extra money for unexpected payments. Most commercial property investors build up a contingency budget of 5-15 percent, and you should try to maintain this for as long as you’re managing the site.

Investing in commercial real estate

Once you’ve completed all six steps, you’ll be in a great position to make an informed choice about your property investment. Although you can never guarantee success, you can limit risk by planning, consulting professional advisors, carrying out extensive research and maintaining a contingency fund. Ultimately, you should weigh up whether the potential profits are worth the risk if you’re to maximise your chances of success.

To find out more about investing in commercial real estate, read our Overview and How To Get Started guides.