Market Watch

7 Fundamentals of Commercial Property Investing for Starters

Buying commercial property is a really big decision. Not only is this a big investment, but it is also a long-term investment; an investor or potential needs to weigh the pros and cons wisely. As per estate agents in Gravesend, investing in commercial property is all about choosing the right property and following a good strategy. If you’ve been thinking about jumping on the commercial property investment bandwagon, you better think long and hard before leaping. Here are the 7 fundamentals of commercial property investing that beginners should follow to the tee.

  1. Do your research

Before you jump into the overwhelming world of commercial investing, you must do your research. Spend hours and days learning about the market, reading about the commercial property sector and speaking to experts to broaden your horizons. You need to have basic knowledge about the commercial property sector to start investing, but you need to have thorough knowledge about the commercial property sector to ensure that your investments do well. Also, it is important to do your due research regarding the rent. Has the average price of rent increased or decreased in the past? What is the average rate of rent for similar properties in the area?

2. Create a strategy

Why are you investing in commercial property? Are you planning on investing in buy to lease properties? Do you want to buy a fixer-upper and sell it for a profit? What type of properties do you want to invest in? What kind of areas do you want to invest in? Do you want to invest in developed or developing cities? Before you start the process of investing, you need to have a clear strategy in mind. Also, it won’t have to have a short-term goal as well as a long-term goal in mind too.

3. Think of this as a business

Think of commercial property investment as a business. Just like in a business, the end goal should be making a profit. Also, like in business, it is important to add capital to the initial investment in order to succeed. Also, you need to have a trustworthy team by your side, at all times. And most importantly, you need to know everything about your business; in this case, you need to know everything about commercial property investing and the commercial property market.

4. Think of cash flow

At the end of the day, what determines your success as an investor is the cash flow. You can have a hundred properties in your investment portfolio, but if none of these properties is making any money then you haven’t succeeded! The property that you invest in should be cash flow positive. The only way to ensure a positive cash flow is by making sure that the rent is higher than the sum of the monthly mortgage as well as the monthly fixed expenses.

5. Invest for yield, not just growth

One big mistake that many investors make is investing in a commercial property hoping that the price will grow in the future. While the property market will usually grow, you cannot base your entire investment strategy on this approach. Instead, you should invest in a property based on the monthly yield aka the rent. Basically, whether or not the value of the property will rise in the future, you should have a positive cash flow and make money off your property thanks to the monthly rent. Just assume that the value of a certain property will never rise – will you still invest in that property? If you are making an instant profit from the rental income, then you should make that investment.

6. Always invest for the long-term

All good things come to those who wait. Patience is a virtue. And when it comes to investing in commercial property, it’s all about the long game. When you are investing in any property, you need to think about the long-term benefits. Just because you feel that the property market will go up in six months does not mean that you purchase on a whim. Think about the long-term. What will happen to the market in 5 years? What about 10 years? Where will the market be in 25 years?  However, if you feel that a certain investment is not doing well or that you can no longer make any profit from a certain investment, then it is beneficial to sell and reinvest, for the long-term.

7. Always trust the numbers

When it comes to property deals and market trends, the numbers never lie. If the numbers show that the investment isn’t worth it in the long run, it probably isn’t. Don’t get emotional, after all this is a business investment. Listen to the numbers and do not let anyone tell you otherwise. In the long run, it is better to lose a seemingly good deal as opposed to having your fingers burnt by a deal that was too good to be true.