Part 4: Is commercial property right for me?
Is commercial property a good investment?
Commercial property is a complicated process that often requires the expertise of those with sufficient know-how of the industry. But that doesn’t always have to be the case. If you have years of experience investing in the stockmarket, flipping houses, or anything related, don’t let the skills you bring to the table go to waste.
Compared to residential property investments, commercial properties have much more room for potential. In fact, it’s not surprising to see commercial investments yield as much as 10-15% growth annually, while residential properties typically only accumulate around 1-4%.
On top of that, commercial buildings offer many more ROI possibilities than single-family homes, one of them being advertising. Your business can and should sell billboard and signage space as well as cross-advertise with other local businesses to generate more revenue.
In short, if you put in the time and effort necessary to understand wise commercial property investing, there’s no reason you can’t significantly increase your bank account. But always remember: research, location and finances come first, and when in doubt, consult an expert.
Commercial property investing advice
If you are an experienced residential investor looking to break into commercial your first point of call should be to start building relationships with a number of the commercial lenders such as Lloyds, Co-op, Santander, Handelsbanken or a few of the high street lenders. Start by getting them to finance your residential buy to let purchases as it’s a great way to build a relationship with a business development manager or property specialist and you’ll then be able to start talking to them about commercial projects.
At its core, commercial properties include any buildings used for business purposes, from shops and warehouses to flats and offices. And unlike residential property, which often carries a lease of 6 months to a year, commercial properties typically have significantly longer leases, ranging around 10-15 years. So on top of the fixed-rate loans that aren’t subject to changing rent, commercial investments also bring other advantages, such as tax breaks and the freedom to be the arbiter of important business decisions.
Size Matters
For many years, I’ve looked at the size of commercial buildings in the local area, surprised at their low capital values versus residential properties on the same street of an equivalent size (or adjusted on a per foot basis); I regularly thought to myself that there must be mileage in converting these buildings into residential. How was it that the values of these buildings drifted down when residential was rising? Why were so many empty? Surely there was an opportunity for arbitrage here?
As well as the low cost of commercial buildings for every foot of space when compared with residential properties, they offer some major benefits when looking at development. Frequently, agents’ details show the floor area net of corridors, toilets, plant and other non-office/commercial space, often known as the net internal areas or NIA. Although this is now changing, the gross internal area or GIA is more relevant for conversion. As modern apartment buildings require less plant, smaller corridors and no toilets, and development can often extend to loft or other storage areas, buildings can be a lot bigger than the agents’ details show. As commercial buildings are usually valued by floor area, this is a big thing to keep an eye on.
Often I have bought buildings in the past because of the way an agent has measured the building, increasing or decreasing its size – and therefore value – in the eyes of those competing to buy it. The amount of saleable space that can be generated from the building vs. what the building cost to purchase vs. the area in which it is located per foot is what matters in the end, more than a lot of other noise that flows around the marketplace. Large commercial buildings can frequently have floors built on top of them, depending on the structure of the building, what area the building is in, what is either side of the building and considerations like key views in the local plan, such as those of a Cathedral.
Care homes would fall into a similar category: many have gone out a of business because of local authorities changing their requirements and rules around who can provide care and the levels to which it must be delivered. A previously booming industry (which it still is for some stronger, more specialised operators), more and more is demanded from care operators without them necessarily having the revenue to support the level of regulation present in the industry. An increasing number of operators have also entered the market offering care in people’s homes, which seems to be popular. With so many scandals concerning the deficient – and sometimes criminally deficient – care of old people in some homes, public confidence in these homes has been seriously knocked, causing a number to close.
Many other commercial buildings have seen a premature end to their useful lives come about in recent years too. Many retail spaces have disappeared with the onset of the internet, and while industrial space has let well post-recession due to new operators supplying goods online, many high street operators have suffered. This has meant that the ‘uppers’ of many of these properties can be converted to residential, as there isn’t much use for many of them otherwise.
Commercial Property is one of the most lucrative investment strategies right now. We are offering this amazing opportunity for you to get in on this trend using little to none of your own money; how to find the best deals, how to find your goldmine area and much, much more.
Interested in taking your Commercial Property Investing knowledge and cashflow to the next level? Our Commercial Property Excellence Online Course is perfect for you to discover the Secrets to Commercial Property Success. Our Customer Engagement Team can also be reached at 01733 898557, Monday to Friday, 9 am to 5:30 pm, to answer any of your questions. Take action today! To your success… Cheers.
