With everything which has been going on in the residential buy-to-let market over the last few years, it’s hardly surprising that some investors have been taking a whole new interest in commercial property. If you’re new to this branch of property investing, here are four tips to help you get started.
Do your general homework on the sector
The broad principles of investment generally apply across any sector, but each industry area has its own specific characteristics you need to understand in order to be successful in it. Much of what you have learned in the residential property sector will also apply to commercial property; however, there are also some major differences you will need to grasp. A good approach would be to do some general reading, with a particular emphasis on understanding the necessary jargon, and then network with industry experts to test your understanding and develop it further.
Choose your preferred commercial property niche
Like its residential counterpart, the commercial property market contains a number of specialist niches, each with its own distinct set of traits. When you are just starting out in commercial property, you may find it best to choose a niche which has a lot in common with the residential property market such as student halls, care homes or hotel rooms. This can make the learning curve rather easier for those new to commercial property. As a side note, it is often best to stick to this niche to begin with so you can really come to understand it in depth and then diversify later if you feel the need.
Learn exactly how the numbers work for your chosen niche
When you buy a residential property, you generally buy a whole property, have ownership of its management (even if you choose to delegate to an agent) and decide for yourself what rates you wish to charge to tenants. When you buy a commercial property, it is much more likely that you will buy a “unit” within a whole and that all the investors will be mandated to use a designated management company, which will guarantee them an income for a fixed period and have a process by which investors can exit the scheme (after a certain period) by selling their units back to the vendor for a previously-agreed price. These differences can require some mental readjustment.
Get to grips with corporate financial statements
If you choose to buy a whole property and let it to tenants directly, then you’re going to need to understand corporate financial statements to be able to judge a prospective tenant’s financial health. If you choose to buy a property as an investor in a limited company and/or in a niche which depends on the use of management companies, then you’re going to need to understand corporate financial statements to be able to judge the health of a prospective investment partner. In short, if you’re thinking of investing in commercial property, it’s highly unlikely that you’re going to find a way round getting to grips with corporate financial statements.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
The crowdfunding equity platform ClubDealOnline launches ‘Round as a Service’
Thanks to the new service "RaaS", the ClubDealOnline portal will allow to launch capital raising rounds reserved to companies that...
XRApplied helps David take on Goliath: Walmart-style supply chains for SMEs
Retailing giants like Walmart and Amazon have an unfair advantage over their smaller competitors—their supply chains. With centralized databases and...
SparingVision closes a €44.5 million round and gives entry to Ysios Capital
SparingVision has recently closed a financing round during which it managed to raise $52.7 million (€44.5 million). The resources will...
How can HRD pave its way in the evolving world of FinTech?
Indian FinTech companies have consistently shown that the companies are either on Merchant Payment, Consumer Payment, Lending and finance, or...
What types of licenses for the production of cannabis will be granted in Ecuador
Ecuador is committed to be a part of the billion dollars cannabis market and has recently put in place a...
Featured7 days ago
Which fintech company raised the most funds in Q3 2020?
Africa5 days ago
Fruitbox Africa: Frankfurt investor and Siemens to create jobs in Ethiopia
Cannabis7 days ago
Medical cannabis to be reimbursed in France from March 2021
Featured6 days ago
HSBC survey shows investors’ interest in ESG is increasing