The rewards from investing in commercial property (retail, offices, car parks, industrial spaces and warehouses) to lease, can be huge. Maintenance will often be signed over to the tenant and the profit margins are usually higher than with residential properties.
It sounds simple, but there are several mistakes that commercial property investors make, that cause a problem for their investment.
The property doesn’t meet tenants needs
You might think you have the perfect commercial property, but it just isn’t being taken! What could be wrong? It could be the wrong shape or size for what businesses in the area need. The location could also be a factor, it is out of the way, is it lacking in footfall.
Is the property accessible by public transport and offer enough onsite parking? Before purchasing a commercial property you need to access all these elements to see if you have a desirable property. It is worth speaking to other businesses in the area to see how their business operates and whether they are successful.
Letting your purchase be run by emotion not strategy
This is one of the most common mistakes made by property investors! Many people purchase a building because they see it as “affordable” or they have personal preferences that it matches. The fact is, the purchase is not about you, it is about the needs of potential tenants. As explained in the above point, there is so much more to consider. You need to match your financial goals with the property's desirability on the market and the risk factors.
Ignoring the additional costs
Buying the property is simple enough, but so many investors forget to factor in the additional costs of maintaining and securing it. The property could be old and needing investment into things like electricity and water supply, new windows and the addition of air conditioning. You will need to create a comprehensive checklist of things to do before you can lease the property, based on the needs of the incoming tenants.
Be direct with the buyer about anything you need to know, view the property in detail and get experts in to give you their advice on what needs to happen. Ignoring the additional costs before purchase could leave you with a nasty financial surprise later on.
Not properly assessing the tenants and their business needs
It’s not just about thinking about how they will use the property you need to conduct proper credit checks in various forms and keep on top of the legal paperwork and contracts to check everything is above board.
Failing to do legal compliance
So many property investors get themselves in a situation where they can’t meet the legal requirements to complete the purchase or to carry out the improvements (or other work) they intended to do with the building. Pay particular attention to the legal aspects of the purchase and where possible get the support of professionals like surveyors and legal advisers. Extra costs and due diligence at the early stages will prevent problems and financial loses later on.
More advice on buying commercial property: