Intelligent commercial property investments
What constitutes an intelligent commercial property investment? “This is a question often asked, but not always satisfactorily,” says Leon Breytenbach, National Manager of the Rawson Property Group’s commercial division. In this article, Breytenbach highlights a few suggestions to assist potential investors in the assessment of the different aspects of a commercial property investment.
Realising the risk
It is a well-known fact that investments of any sort carry an element of risk, be it great or small. Nevertheless it is only by accepting this element of risk that great and lucrative investments are made. In addition, there is usually a large capital outlay required in order to purchase a commercial property. “Another variable which needs careful consideration is that there is no exact or predetermined time frame within which the investor will be able to recoup his initial investment,” Breytenbach clarifies. This could give rise to liquidity concerns, if it is not properly factored into the risk equation.
A long-term investment
When committing to a commercial property investment it must be understood that for optimal returns, it needs to be a long-term investment. Hence the capital will not be accessible for a long period of time. “Furthermore,” Breytenbach explains, “sufficient additional funds will have to be kept aside in readiness to cover any expenses which the property will incur at any time.” It is also recommended that an investor retain a commercial investment for a period of up to seven or even ten years. In the event that an investment is sold within a shorter period, it is highly possible that the profit achieved will be less than the original estimate. In the worst scenario the investor could even incur a loss.
Understanding market trends
In all things, knowledge is power. Uninformed or blind decisions should be avoided at all costs, when investing in commercial property. “It is necessary for an investor to be cognisant of the prevalent trends, so market research is needed in order to make the best investment and achieve the maximum return,” suggests Breytenbach. Market research should help the investor become aware of, as well as understand, the genuine overarching trends in the market. This will ensure that the investor does not operate within a limited field of information.
Don’t ditch the due diligence
“It is essential to invest time, money as well as energy into the due diligence of a commercial property,” Breytenbach explains. This will prove vital, either for verifying documents or when inspecting the property. All aspects of the property should be thoroughly investigated so as to avoid a later discovery of inherent defects or elements of the building which are not within the required parameters. Make use of the proper professionals, as this will ensure that the necessary due diligence is properly completed.
Diversify
Some investors may show a preference for a specific asset type when investing in commercial property, yet it might prove worthwhile to consider a wider spectrum. It would be wise to consider different asset types over a broader geographic area. In this way the risk factor would be spread over a greater area. Thus, if one property or asset type were to come under pressure there would be unaffected elements of the investment portfolio which would carry the weight of the pressurised investments.
Maximizing your investment
Once the investor has acquired a commercial property, some capital must be allocated to it in order to maximise the potential return. Expenses such as repairs, renovations, upgrades, in addition to marketing of the property, cannot be disregarded or taken lightly. Neither can other unforeseen costs which may and probably will arise.
Developing a network
Investors should develop a network by building relationships with other commercial property investors as well as private lenders. By doing so, it is possible to create the opportunity to glean insights from their first-hand knowledge, besides their great store of experience. It is often the case that these individuals and companies may be the first to know about new investment opportunities prior to their being released on the market.
Exercise patience
“A commercial property investor needs to be patient,” says Breytenbach. “Finding the right opportunity; entering into negotiations; renovating where necessary; entering into the purchase procedure; these will all take time, as will the achieving of worthwhile returns.” Yet notwithstanding the amount of time spent to carry out all these processes, the rewards will be well worth the effort.
