Buying a property can be beneficial for many reasons beyond simply putting a roof over your head. Investing in a range of residential and commercial property can expand and diversify your property portfolio. You don’t have to be a landlord for property to yield returns or accrue value either. Properties intended for commercial use are a business asset just like any piece of specialist equipment and as a result, they provide a return in the form of the space they offer. That being said, property is not without some risks. Read below for the information you need to know to decide if investing in commercial property is right for you.
What counts as a commercial property?
Commercial property refers to buildings and their surrounding land that serves a business purpose. The exact nature of this purpose will vary depending on who owns the property and the kind of work their business does. In the UK, commercial property is broken down into the following broad categories:
- Retail.
- Offices.
- Industrial.
- Leisure.
- Healthcare.
Certain kinds of commercial buildings will be highly customised to suit the role they are intended for. This tends to be especially apparent with properties used for leisure and healthcare purposes. The result is more initial cost associated with the investment, as significant changes may have to be made to prepare the building for its new function. As experts in commercial conveyancing and legal property advice, the Toomey team can advise on the right properties to invest in for your goals.
Different ways of investing in commercial property
Investing in property is not quite the same as buying it. When it comes to investing in commercial properties, there are a few different ways it can be done. You need to be aware of how these investments differ from one another so you can decide which option will best meet your needs.
Direct investment
This is typically the approach taken by private investors, as they buy the entirety of a property outright (or a majority share in a property).
Direct commercial property funds
By using a collective investment scheme, also known as a brick-and-mortar fund, an individual can invest in commercial property. The money is paid to the fund, which owns the property you want to invest in. Returns are then paid back to you based on the growth of the property value and the income it generates.
Indirect property funds
These collective investment schemes invest in commercial properties by purchasing associated company shares that are on the market. This type of investment carries more risk, as the prices of shares can fluctuate massively over time.
Why invest in commercial property
Property value isn’t as heavily affected by the stock market as other assets such as cash and equities. As a result, the value of a commercial property can move independently with the potential to provide returns during periods of uncertainty. Other potential benefits of investing in commercial property include:
High return
Most commercial properties promise a higher overall return on investment due to a few factors. Firstly, one commercial building can house multiple tenants that each pay rent. Furthermore, this rent is often secured for a long period compared to residential investments. Lastly, businesses will usually be willing to pay a higher price if the location of the property is advantageous to their needs.
Lower purchase competition
Historically, there have been fewer parties investing in commercial property than residential property. The reason for this is largely due to the higher deposit percentage and price of commercial properties, the latter often being linked to the size of the building. With fewer buyers to compete with, you have greater choice of what to invest in.
Appreciation
Over time, commercial properties can go up in value as they are updated, or if they are well located. If you decide to sell down the line, this will result in capital gains.
Spread risk
Investing in commercial property allows you to diversify your portfolio. This helps reduce financial risk in the event of damage or a market event.
Steady income
In the event you purchase a commercial property to lease to a business, you stand to have a steady influx of rental payments. This is because commercial property leases are typically longer term than residential ones, often lasting for at least 5 years. Most commercial leases will also contain a clause that ensures the rental rate goes up in line with inflation.
Change of use
It is now much easier to change the use of a property from commercial to residential use. In city centre locations especially, there is potential to increase the yield on a property that is only attracting low commercial rents.
Experts in commercial conveyancing
Through our conveyancing services, you can be safe in the knowledge that your commercial property investment is right for you. By getting a fixed fee quote with no hidden extras, Toomey Legal will help you find, select, and secure a commercial property investment that give provide steady long term returns. You can’t get a better service than ours for a commercial property solicitor throughout the north east.