Businesses may choose to lease space for their new store or office, but others choose to buy the property instead, as it gives them more control and the freedom to do what they want with the building. The property itself becomes an investment – property investors can also buy property to lease to businesses or sell to commercial firms. However, this is very different from residential real estate investing. Here are 4 tips for when you’re investing in commercial real estate.
Understand the Lease Terminology
Property can be held in several different ways in the UK. Property is typically a freehold or leasehold property.
A freehold allows the owner to both own and control the property. This includes the land and the buildings on it. However, ownership might be affected by the rights of others such as access rights, though this is separate from easements like the right of way rights to put pipes and cables in the ground.
A leasehold gives someone interest to the property for a limited length of time. Most flats and a lot of commercial buildings in central London are leasehold. The rights of the tenant are spelled out in the lease – this may give someone the ability to sublease the property or transfer the lease to someone else.
Leases currently average eight years, but they can be as long as 999 years. Leases like this are generally granted after someone pays a premium followed by low ongoing rent payments. Don’t buy property that you can’t use in twenty years or aren’t allowed to sublease to offset the mortgage payment.
Do Your Research
Don’t make the mistake of buying commercial property without doing your research. The worst-case scenario is handing money to someone who doesn’t actually own the building. Most property in England is registered with the Land Registry. The register lists the owner’s identity, the owner’s title to the property, and the rights they have on it. Another step is having the property surveyed so that you don’t buy the property assuming certain features are part of it.
Do research into the history of the property. How are you allowed to use it, and how does this relate to your business plans? Are there issues that might affect its value? This could be anything from changes in public transit plans to future development on plots next to it. You don’t want to waste time buying property that’s going to go down in value.
Another thing you could consider is working with market specialists. You could work with a team like Gerald Eve building consultancy so that you can identify and manage risks to the property, for instance. Groups like these will also help you maximise the long-term value of the commercial real estate.
Plan for the Long-Term
When you start shopping for commercial real estate, buy property for the long-term, not the short term. How many staff will you need to house this year? What about in five years? Do you want to bring clients to the location? If so, do you have enough parking for them along with your staff? And is the location safe and attractive enough to show to your customers? How accessible is it for clients, customers and personnel?
If you’re going to do most of your business with customers coming to the site, then a central location with easy access to public transport is ideal. If you’re going to be dealing with clients remotely, then a location outside of town may be better. It will certainly be cheaper.
Commercial real estate investing offers a high potential return on the investment if you choose the right property, while mistakes are costly. This is why you can’t afford to rush these decisions.