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Article > Combining Security and Profit With Commercial Property Investments




Article kindly supplied by

Peter Scully

 


Once, commercial property investment was reserved for those willing to pour larger sums into their portfolio. Now, it is a much more open and accessible market. Everything from car parks through self-storage units up to hotels and business premises can now be seen in a number of more modestly-budgeted portfolios.

Commercial property investments often target specific markets where they will be able to reap the benefits of high demand in both security and yield. They also often benefit from reduced costs thanks to larger scales of development. This combined with relatively low levels of management are making commercial properties into an increasingly popular investment with a wide variety of investors. Many approach it with hopes of an investment that offers a combination of high yields and firm security. While commercial property can indeed serve this purpose, it is important to carry out a number of due diligence checks to ensure that both areas are suitable catered for.

 

Security
The best commercial property investments usually focus on a particular niche sector which is undersupplied. Ensuring that this is the case will be a critical step in choosing a profitable investment that also gives you security, as the resulting high demand is a key factor.

It is also important to give careful thought to the investment conditions that commonly come with rental properties, such as buy-back or guaranteed return periods. Where long periods of guaranteed returns are involved, the above point about making sure the investment targets a good sector becomes even more essential. High guaranteed incomes are rarely viable without sustained levels of high demand.

It is also useful to make sure you enter into the investment with clear objectives and plan accordingly. In particular, you may wish to plan an exit strategy and the length of time you intend to keep hold of the investment before executing that strategy. This will help you ensure you have a clear plan throughout the life of the investment.

Lastly, it is of course necessary to make due diligence checks surrounding the developer, the development itself, and any other firms involved in the purchase of the investment opportunity. In particular, you should ensure that the project is suitably backed by the developer's assets, with little or ideally no debt associated.


High Yields

The sector being targeted is, once again, essential in ensuring that your investment can obtain suitably high yields. Developments targeting niche, undersupplied, high-demand markets will bring in much better and more consistent yields. The student investment property market is growing in popularity and is establishing itself as one of the safer property investment options and is a great example of this.

Often, the most profitable approach is to invest within a unit that makes up part of a much larger development. This means that you benefit from an economy of scale, with much lower outlays because the production cost was much lower than that of a self-contained unit. This applies not only to purchase costs but to maintenance and running costs as well.

Buying properties at below market value can also be an effective approach. This is usually done with off-plan property investments, with the purchase price financing the development costs. As well as lower prices, you will get instant equity growth on completion. However, be aware that purchasing off-plan can carry some additional risks, and always carry out due diligence.

 

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