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Investing in Commercial Property

Investing in Commercial Property

While many people looking to invest in real estate focus on residential properties, the commercial property market is also a good option for a number of reasons. Find out what you need to know about investing in a commercial property. 

Most well-established real estate agencies have commercial listings as well as residential, and they often have specialist staff members who know all the ins and outs of commercial real estate. 

Whether you need new premises for your business or want an investment opportunity, you can start as small as you want or go for something on a grand scale. Small retail premises can come on the market, as well as single offices, a suite of offices or even an entire office building. Warehouses, light industrial units, heavy industrial properties or development projects are other options to consider. 

Commercial properties can give better financial returns than residential properties do. Investors look for properties with the potential to increase in value and generate a good income each year. Commercial properties tend to allow for a high increase in rent over a long time period. A long-term investment works well because while there may be temporary drops in value, over time the property value should even out and provide good results. 

Conveniently, commercial tenants pay for costs such as rates, body corporate fees, utilities and insurance, but owners usually need to cover maintenance and repairs. 

Ideally you will need a property in a location that is attractive to long-term renters. A good location will have easy access to motorways or main roads and nearby shops. 

Consider how easy it might be to find new tenants if the building becomes vacant. The risk of a prolonged vacancy can put off potential investors because there will be no money coming in during that time. If the space is adaptable and can be used for a variety of uses, it should be easier to find someone to rent it. 

Buying something too expensive can become problematic if the tenant has trouble paying regularly or vacates the property, leaving you to cover the bills while looking for a new tenant. 

A multi-tenancy property can be a good idea for reducing risk, as even if several spaces remain vacant for a long period, chances are that the others will generate enough income for you during that time. More tenants can mean more work managing different tenants’ requirements and lease renewal periods, however. 

Many commercial properties for sale come with existing tenants. If this is the case it is necessary to check the terms of the lease to be sure that you understand the details, your obligations as the new owner, and the tenants’ understanding of what is expected of them. 

As with any real estate purchase, professional financial and legal advice is useful so that you know exactly what you are buying, what your responsibilities are, and how you can manage your investment wisely.