If you’ve taken some time to do the research on commercial property investment, you will have discovered just how attractive the short and long-term returns could be.
For those who have determined that investment in commercial property is a great next step in their profit-building to-do list, then we have some great tips for you in our guide to investing in commercial property.
Of course, investment in anything, whether it be property, stocks or even bonds doesn’t come without risk, and so we’re here to offer just a little help in mitigating a few common risks and missteps in commercial property investment.
That said, let’s take a look below at our guide to investing in commercial property and we will have you on your way to a sustainable and profitable investment.
Start with Location
There is a good reason that so many property TV shows on Foxtel have ‘Location’ in the name, and that’s because the location of your property will dictate almost all of your returns.
Similarly to investing in a residential home for our families, you’ll want to make sure your commercial property is close by public transport, nearby foot traffic and isn’t in a location that’s too far from commercial hubs.
The second array of things to consider is how close parking is, whether you’re located near a lot of other commercial space and if your space is visible from the street, or hidden off the main road a little bit.
Those points in mind, you’ll be better able to determine whether a commercial property is projected to offer a good return, or if you’re better off looking elsewhere.
Have Commercial Contract Lawyers Assess the Agreement
If you’ve found your star commercial property, don’t pull the trigger just yet.
One of the most imperative tips in our guide is having all of your documentation looked over by expert lawyers such as LegalVision NZ Contract Lawyers. Your legal team will be able to tell you whether there are any possible issues in your contract, if liability issues are transferred to you or whether you’re potentially buying into a ‘lemon’ of a commercial space.
That in mind, always head to your experts as they are going to be your best bet at mitigating issues down the line and reducing your chances of losses if they can predict contractual issues early.
Observe Local Vacancies
Another key step when it comes to investing in commercial property is taking a look at local vacancies in the area surrounding your potential space.
If you’re noticing that there are a lot of vacancies, then you might be in trouble when it comes to finding someone to lease the space from you. It is always good to be on the lookout for commercial property in high-growth areas of your town or city.
You’ll want to be sure that even if your tenant does decide to leave, or doesn’t renew their lease that you’ll be able to find a new one quite quickly.
Our final point here is never to invest in a commercial property without a tenant unless you’re certain you will find one as soon as possible — or already have one lined up.
Take a Look at the Building
Our third key consideration is to assess the state of your building and whether it’s going to affect your income and investment returns or not.
As we’re sure you already know, an old, tired and poorly maintained building is going to cause routine issues for your tenants. Whether it be things like leaks, creaks or unstable flooring, you’ll be on the hook for repairing these issues — which can become quite costly.
Just as you would with a residential property, be sure to take a look over the building for any problems. If the building is new, modern and looks well-maintained, then you’re on the right track here.
Vet Existing Tenants
For our readers who are purchasing into an already-leased space, then take a look at who your tenants are.
You want to find as much information on them as possible as well as any data on when their lease ends, how long they’ve stayed in the building and if they are in a falling industry or not.
These are some of the diligence activities you will need to undertake to ensure you’re making the right investment. A tenant who has only just moved in isn’t a sure bet, and if you notice that they’re in a failing sector of business, then you should consider looking elsewhere.
Understand Tenant Requirements
To end our list of tips for investing in commercial property, we’re going to suggest you take a look at what you or your tenant’s fundamental requirements are with regards to their business success.
For example, retail tenants will require a space that allows for high walk-in traffic as well as good parking spaces. Tenants looking to use the space for offices will be looking for good public transport connections as well as lighting and other internal perks.
Use these types of metrics to control who you allow to lease the space. If you’re approving your commercial space for businesses that the building or the commercial space wasn’t designed for, you’ll be struggling with costly, high tenant turnover.