Investing in Commercial Property

The process of securing a commercial property investment is in many ways similar to the purchasing of a Buy to Let investment: you need to carry out research into the type of premises required and the surrounding area, then borrow money from the bank and collect rent from a tenant. If you’re thinking of expanding a property portfolio which already consists of residential property, it makes perfect sense to create some variety by adding commercial property to your list of assets, especially at a time when house prices are seeing a decline.

Typically, the lease for commercial investment property will run for around 10 years. In the retail sector, this can stretch to 20 years or more, compared with just six to 12 months for residential leases. One of the main benefits of this is that you don’t have to endure the hassle of finding new tenants every year. Another is that you don’t have to worry about times of void (when your property is empty and you have no income to cover your mortgage payments). Another advantage of investing in commercial property is that you are leasing the property to businesses, which are generally considered more reliable than individual tenants.

The success of your commercial property investment will rely heavily on its location. Securing a purchase in a prime location is much more likely to generate a good yield than doing so in an area less popular with investors and tenants. Thinking about the area from both residential and business points of view is advisable, as companies are often interested in setting up their offices in towns and cities which are desirable to potential employees.

Once you’ve researched into the type of commercial property and its surrounding area, you will need to arrange the financial side of things. It may sound tedious but it’s in fact the most important aspect of any transaction of this sort. Ensure that your repayments are less than the rental income you will receive as if you want to borrow in order to invest up to the maximum amount otherwise you may find that the rental income only just covers your mortgage repayments. This means that even a small increase in interest rates could leave you in the red, if you’re not adequately covered.

Cover your back by ensuring that the lease provides for upward-only rental reviews, say every 5 years. You also need to ensure that your tenant signs a full lease for repairs and insurance deeming them responsible for the cost of any damages. You can also insist on a ‘privity of contract’ lease, which will ensure that your original tenant is responsible for paying the rent should they decide to sub-let the space.

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*This page is provided for information purposes only and should not be construed as offering advice. Flex Profit Hub is not licensed to give financial advice and all information provided by Flex Profit Hub regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.