Part 5: Location, location, location
Know what type of property you want to invest in and where
When it comes to commercial property, the location and type of property you are looking to invest in will go a long way in determining your potential returns. So always take supply and demand into consideration.
Whether you want to invest in a block of flats near public transport links or refurbish a disused warehouse in an up-and-coming neighbourhood, the old property cliché holds true, “location, location, location.”
Getting a place with poor footfall
when it comes to letting a property to a business they need as much exposure as they can, especially if it involves marketing to the general public. The best properties are usually located in a position where people will flock to but also where they usually frequent, pass by and visit regardless if they intentionally sought your premises or not. The better the foot traffic, the higher your the rent and the lost downtime of letting and reletting the premises. Location should always be at the forefront of factors when deciding whether to purchase or not any type of property, but more with commercial premises, as these units can be sitting empty for a long time with business rates being applicable too.
Think about it like this, a tourist shop near a museum or near the airport will generate higher sales than once situated in an village or a rural town. One other thing to be mindful of is not to fall for the tricks of the trade such as flashy fit-outs or impressive improvements which are all likely designed for the short term. They disguise a properties value as well as the poor capital growth prospects within substandard locations.
Making the wrong decisions on property choice
This is probably one of the most common mistakes made involving commercial property. You need to find a property that suits your financial goals as well as your appetite for risk.
Remember the three most common choices for buying commercial property are income, capital growth & strategic purchase. So you letting your emotions get the better of you is a costly mistake. You shouldn’t buy a commercial property just because you consider it to be affordable or because ‘you like it’. When purchasing a commercial property you will need to base your decision on a property’s location, historical performance, yield & tenant type. Remember the lower the yield the higher the value.
Now, experienced commercial property investors may have the right contacts, the right insights, and the right knowledge to know how to turn some of the following into profitable investments.
Buying property that is rundown, needs repair or a “fixer-upper”
We have encountered many new investors who have fallen into the trap of snapping up a commercial property simply because of its too-good-to-resist price tag. Major renovation and improvement work is not only a pain for your wallet but also intensely time-consuming.
The phrase “you get what you pay for” is particularly relevant here. Despite the fact that it is very possible (and advisable!) in the world of buy-to-let property investment to find BMV properties, when the buildings in question need rewiring, underpinning, and load-bearing walls require support, then novice investors are advised to steer well clear! When we were a pair of greener investors, we made the mistake of buying a commercial property like this, and were forced into flipping the damn thing because of countless costs we hadn’t budgeted for.
Repairs and costs for rundown properties have a habit of spiralling unaccountably, so stick to cosmetic work only if you can.
Of course, this rule has the exception of buy-to-sell ventures, but for buy-to-lets it’s a good way of avoiding subsidising the property’s mortgage every month.
Buying property abroad
Buying properties abroad is a risky strategy that we fell for before 2008, when we were naïve investors. The appealing idea is that, if you buy a property in a desirable location such as the Caribbean or Dubai, you are purchasing both an investment and a holiday home!
We put deposits down for a couple of properties in Florida, but thankfully got them back before we found ourselves in trouble. The problem is that areas billed as hotspots (i.e. areas of investment that are billed to rise in value very quickly) are often based on rumours that emerge from unreliable sources and local governments announcing a regeneration project. This is speculation and prediction, not provable evidence.
This is not to say that overseas investment can’t work, but expert property investors who purchase properties in foreign lands generally know the language, have property in or are moving to the country, and know the area as well as their home town or city. So we recommend that you save yourself the hassle and keep things simple, for now.
Types of commercial property – which type of property makes a good investment?
Lots of other commercial building types have seen their relevance diminish. Many nightclubs are sitting empty across the country, such has been the shift away from people using them; this is largely down to the change in licencing laws – people don’t have to leave the pubs at 11pm and move onto a club, so demand for them has reduced. Pubs and bars now open later and have variable closing times, so people don’t all end up on the street at the same time, and we see a reduction in fighting and anti-social behaviour. The smoking ban hasn’t helped clubs or pubs either, as many stay at home so that they can continue to smoke. Restaurant chains have also grown significantly through this period, with private equity groups aggressively rolling out chains such as Pizza Express, Wagamama, Côte Brasserie and Bill’s, to name a small selection. With new world choices such as these, people seem to be socialising in different ways. And the excess consumption of alcohol has subsequently reduced, which can’t be a bad thing for any of us, not least the NHS.
Dotting properties around the country is generally a poor idea for reasons that also apply to the “Abroad” point: you want to become an expert in your area(s) of investment, and remote management puts you at risk from spreading yourself too thinly and failing to pay enough attention to your properties.
We have seen investors buying low-cost properties across the country, thinking that they have found a set of fantastic deals, only to find themselves in possession of a portfolio only half-occupied. On one occasion, we saw an investor purchase 90 properties scattered across the country fold due to the £25,000 it was costing him every month!
So don’t buy all over the place – find your local goldmine area and stick to it.
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.