Investing in commercial property can be confusing if you are new to the market or have limited business experience. Read below for some tips to get you started.
Many new investors will begin by purchasing an individual property, building equity in that while it is leased and then adding to their portfolio. A first property is likely to be local to you, after all, you’ll know more about values in the area, the demographic and the type of tenants that are likely to be a long term lessee.
You might also opt to buy into a commercial property fund that manages everything for you and gives you a cut of the annual returns. They could invest in offices or service stations that are for sale, but as an investor you do not typically have direct control over what is purchased as they take care of that on your behalf. Funds of various types are not only popular if you want built in asset management, but can be a good way to enter the commercial market if you lack a reasonable deposit to get you started with buying individual properties yourself.
Whether via a fund or your individual portfolio, you’ll want to look for a mixture of assets. The idea behind this is to minimise risk by having a variety of types of property under your belt should a downturn in the market occur. For stability, many people nod towards blue chip locations with high calibre tenants. If you’re looking for growth perhaps target a building or shopping centre with a mix of existing tenants and vacancies which represents potential increases in rental income in the future. New residential developments can also be lucrative but risky depending on the actual delivery of ‘promised’ infrastructure to support new communities. In this scenario you’d need to be prepared for a long period without a tenant.
For commercial property, there are more options out there than a loan from a bank or financial institution. You might be able to source small business funding via an SBA lender, or even something like equity financing if you are purchasing through a business that you own. Like residential property, you might also consider the option to use self-managed super to buy property and build a portfolio in this way.
You may wish to outsource some of these tasks to a lending professional such as a mortgage broker. In Australia, their services have been found to vary in quality so it will pay to take the time to find someone with expertise in your desired type of property investment. Be aware though they are not considered to be independent advisors and they will not always compare the entire lending market. This is due to their commissions or agreements with certain banks or financial institutions. This is not to say they won’t be helpful, but consult an independent financial advisor if you are after specific guidance that will help you to grow your wealth via a commercial property portfolio.