Whether you’re a seasoned investor or just getting started, it’s important not to rule out commercial properties. While the price tags and unknowns of this varied sector can be overwhelming, doing it right can mean thousands in your pocket in a short time.
In this article, we will cover:
- What is commercial property investing and why you should get involved
- Key considerations for beginners
- The mistakes we see too often
What is commercial property investing and why get involved?
Commercial property investing is the activity of purchasing property, such as stores, offices, warehouses and hospitality venues to rent to commercial tenants.
There are several drawcards to commercial property investing that attract beginners to the sector.
The first and most important is the potential of a strong, reliable cash flow provided by long-term tenants. Commercial properties are often leased for years, not just months like their residential counterparts.
Risk mitigation through portfolio diversification is another element that attracts investors to the commercial sector. Unlike residential property investors, commercial investors have the option of multiple industries and property types.
Key considerations for beginners
If the thought of commercial property investing has you sold, then there are several key considerations to make before taking the leap.
- Do the research
There are multiple facets to investigate when performing your due diligence and deciding on any commercial investment you make. These can be broken down into two areas: situational and industry-specific.
Situational elements include the location features, nearby developments, local supply and demand, demographic factors like population and employment rates.
Then there are the industry-specific factors. These are those that are unique to the commercial property type you are looking to invest in. For example, if you’re looking to invest in an office building you will need to look at the competition in the area, office vacancy rates, the demand for office space and historical office trends in the area.
- Upfront capital and financing options
Commercial investing isn’t cheap and you need to hold the upfront capital to get involved.
It’s likely you will need ample financing options, so it’s always recommended to meet with a financial expert before getting started on your commercial investing journey. Commercial property financing options can be very different to the residential equivalent and you need to be across these before putting pen to paper.
- Consider ownership structure
Are you wanting to invest alone or in a partnership?
This is largely dependent on your situation. Each option has its pros and cons but the decision should be underpinned by three main things – your financial situation, investment goals and your partnership options if that’s on your agenda.
Three beginner mistakes we see too often
Investing mistakes are inevitable, but here are the ones we see often at the start of any investing journey.
- Influence by unreliable sources
Getting sucked into media hype can be the downfall of investors cutting their teeth in the property market. This is especially relevant in commercial investing where industries are subject to different macroeconomic factors.
To avoid this mistake, ensure you’re getting your information from reputable sources. Look past the newspapers and use research from reputable organisations like CBRE and JLL that specialise in commercial property analytics.
- Failing to invest in an expert team
The team you surround yourself with will help you make your commercial investment as successful as it can be.
Key players in your team include your property manager, accountant and a financial expert such as a mortgage broker. Partnering with a buyer’s agent when purchasing your commercial property will also help you identify if the property is worth the price tag.
- Not claiming all deductions available
A major mistake many beginners make is not understanding the tax deductions available to them. These deductions can make a huge difference to the property investor’s bottom line, giving them thousands back in their pockets.
Just some expenses that a commercial investor could claim include interest repayments, repairs and maintenance costs, insurances and property management fees.
It’s important to remember the hidden deductions to be claimed, including property depreciation. This is the natural wear and tear of a property and its assets over time.
Depreciation is often overlooked as no money needs to be spent to claim it. As a commercial owner, you will be able to claim depreciation on the property’s structure, fixed fixtures and assets you own.
BMT Tax Depreciation can provide an obligation-free quote for a depreciation schedule for any property you are looking to buy. To find out more, contact the team today.