When it comes to investing in property most people tend to think of buying or developing residential property.
But there is an often overlooked market that offers some great advantages – Commercial Property.
In this quick guide we look at the pros and cons of Commercial Property so you can see if it’s something that might work for you.
Benefits of Commercial Property Investing
One of the best reasons to invest in commercial property is the earning potential.
Commercial properties tend to have a better annual return than residential properties.
For example, in some areas, commercial properties can offer annual returns against the purchase price between 6% and 12% compared to just 1% to 4% for residential properties.
Another advantage that commercial landlords have a vested interest in looking after the property – after all it is their business.
The means they keep your property well maintained and looking good – which helps improve the value of your investment.
Plus as commercial properties are rented by businesses you are also more likely to get a much more professional relationship with your tenants – and less headaches!
A big advantage that commercial property offers is using triple net leases.
With triple net leases the owner of the property does not have to pay any expenses on the property apart from the mortgage.
Instead, the lessee handles all property expenses.
This gives you an amazing hassle-free and expense-free return on investment.
These kind of leases are popular with large chains, who want as much control over their look and feel as possible, rather than with small businesses.
Things to consider when investing in Commercial Property
So those are the advantages of investing in Commercial Property.
What are the negatives?
Well, first and foremost, you are at the whim of the wider economy.
In times of recession commercial property gets hit harder than residential property.
People still need somewhere to live but shops and businesses will close down.
Voids can also be longer.
While it’s true commercial tenancies tend to be long term when you lose a tenant it can sometimes take a little longer to find a new one.
There’s just not as many people looking for commercial properties as there are residential.
Mortgages on commercial properties also tend to always be on a repayment basis and be lower loan to value.
So as you can see there are some great reasons why you should consider expanding your portfolio into Commercial properties.
But you need to be aware of the possibility of losing your tenants during recessions and it taking a while to replace them.
Of course you can mitigate for these risks by ensuring you invest in property in popular and more recession-proof areas and industries.
If you would like support financing a residential or commercial property purchase or development, then just drop us a line for an informal chat on 0161 913 2780 or email us here