5 Keys to a sound commercial investment strategy
Anyone who invests in anything does so with the expectation of some future return. Commercial property is no different. The trick with getting the best return is to remember that investing in any real estate is not a simple set-and-forget proposition.
There are many variables that can impact your yield. Vacancy rates may fluctuate, as may prices and occupancy costs. The best approach to ensure your investment provides a good return is to think strategically, and look at ways you can improve your net income or capital value over time.
Here are five key things you can do that form the basis of a sound approach to your investment.
- Choose your tenant wisely
Fools rush in. Don’t be hasty in filling a vacancy. Consider the tenant and especially their business history when looking at the offer of lease. It also pays to reflect on whether your tenant and their business represent a good fit with the immediate area and its existing mix.
- Document everything, and well
Get together early with your legal advisor and formulate a standard lease agreement that is a match for your property’s particulars and cash-flow requirements. If there are multiple tenants and they are all compliant with consistent and well-drafted documentation, then you’ve positioned yourself to benefit if and when the time to sell arises.
- Maintenance = opportunity
If you’re required to outlay on maintenance in a property’s common areas, take it as an opportunity to see how you can tangibly improve your asset, rather than just simply fix something. You might open up new space you could let, for instance, or make visual enhancements that will pay off in the longer term.
- Plan those capital expenses
Over time, most commercial properties will require a measure of capital expenditure, whether related to equipment or renovation needs. Plan it out – perhaps over a five-year period – so that you can action projects with full foresight of any cash flow and time limitations you may face.
- Let the experts do the heavy lifting
The simple truth is that many who invest in commercial real estate often don’t have the time to weigh all the variables and manage their asset effectively. Yes, professional property managers will add an element of cost, but it is a cost that can be usually offset as a recoverable as per the standard lease. Freeing yourself from the hassle of the day-to-day management of your asset is surely worth it in any case!
As you’ve seen, strategies don’t have to be complex for them to have an impact. These five simple measures should enable you to free yourself up to consider the wider vision required by your property and investment, while seeing it improve through a proactive – and effective - oversight of your tenancies, liquidity and net value.