Commercial property investing is a dark art that requires secret knowledge and big money to succeed. At least that is how it can appear from the outside. The truth is that commercial property can be an easily accessible investment, and with lighter development restrictions, there has never been a better time. If you want to know how to buy commercial property safely, this guide will be a great starting point for your journey.
How to buy commercial property in use
For your first steps into commercial property investments, it will be worth your while to understand the basics types of property to consider. The Town and Country Planning Order 1987 was updated in 2020 and gives each type of property a use class. A newly created ‘Sui Generis’ bands together all of the uses that are excluded from the other classes.
The range of commercial property use types is vast. The first uses that come to mind will likely be the places you pass every day like retail shops, offices, industrial buildings and food outlets such as cafes, restaurants and pubs. In addition, consider medical and health centres, sports centres, hotels, care homes and creches. Going one step further will also include launderettes, petrol stations and places of worship plus a host of leisure facilities such as cinemas, public venues, casinos and museums.
There are certainly many options when we consider them. The point being made here, is that the current use of a property will be an important factor to understand. All of these properties may have greater potential through a change of use, so being open-minded and creative may serve you well in sourcing great deals. That change of use may even be converting a property from commercial use to residential use.
Understanding how to buy commercial property safely will begin with clearly identifying your financial goals. Ask yourself, what am I wanting to achieve through investing in commercial property? Your answer may be to earn a regular income, to generate a lump sum of money or to invest for the future. How you answer will determine the strategy that will be best suited to your goals.
Your strategy will then point towards the types of property that you should search for. If you seek regular income you will need a property that will rent easily and generate a healthy cashflow. To create a one-off profit will require a property that will be easy to sell once its value has been increased. A longer term investment may require a more strategic approach that looks at local development plans and changing tenant needs.
Having a clear vision at the start of your journey will help you to avoid making emotionally based purchases. The ones where you just like the look of it but in hindsight it does not meet the local business needs. Sourcing properties to a strategy will help to find the best area for that strategy and the best property types within that area.
Location, location, location
As we have conveniently moved onto area, now would be the perfect moment to discuss the location of commercial properties. This is a consideration that will require careful research and could be the difference between success and failure. The best commercial building will not attract tenants if the location does not match the needs of their business.
Many businesses will be dependent on a high footfall, so expecting a nail bar to work on an industrial estate could be naive. Alternatively, a business may require easy access to major roads and enough room for heavy goods vehicles to load and unload. Applying common sense will serve you well, however there are additional steps you can take.
Being out and about in your area will glean so much information. See which businesses are thriving, see which ones have closed. Even pop in for a chat to see how trade is going, will they be renewing their lease? The other safety measure will be to establish good relationships with your local commercial property agents. They will have first-hand knowledge of the local comings-and-goings plus the viability of specific businesses in the area.
Your Power Team
Your commercial agent will be an essential component of your power team as we have just discussed. In addition they will of course be able to bring suitable properties to your attention and advise you on legislative requirements and potential issues. As with anyone on your team, building strong relationships through regular contact will be key for them to understand your needs.
A commercial property power team will require a similar skillset of professionals as a residential power team. These will include a solicitor, mortgage broker, insurance broker, tax advisor, surveyor, architect and contractors. However, it will be essential to build a team of specialists to make sure you avoid costly mistakes.
Just any-old solicitor will not be suffice. You will need a solicitor that specialises in commercial investments. The same will go for your mortgage broker, insurance broker and everyone else in your team. Each one will need to fully understand commercial property and what you plan to do with your investments.
Safety in numbers
Ultimately, knowing how to buy commercial property safely distils down to being confident in your numbers. From your starting point of identifying your financial goals, to applying it to which your ideal locations, properties and tenants, to structuring the final purchase and raising the finance. Each decision will need to be backed by quality research and careful calculations to stay out of danger.
Your power team will need to be in place to back you up and give you the right support at the right time. Following these simple steps, as we teach in our Commercial Property Advanced Course, will help you to make educated decisions with reduced risk. Safety in commercial investments does not require knowing everything, that is not possible. It is simply following a tried and tested process.