Whatever type of property you invest in there’s always an element of risk involved, and this is especially true with commercial property investing. Having spent much of my life investing in property, and helping my clients with their investments, I know a lot about the risks involved but also how they can be minimised. In my article this week I have included some of these measures below, and while some of them may seem obvious, you would be amazed at just how many people I come across that take on unneccesarily high levels of risk because they haven’t got a strategy, done the necessary planning, or found the right advisers to assist them.
- Location is everything
Location is crucial not only for occupancy in times of economic wellbeing, but for protection from economic downturns. Commercial property investments are often exposed to economic changes, more so than residential property, because when the economy slows people still need somewhere to live but discretionary spending tends to go down meaning unemployment and business failures go up.
Chosing prime, central locations in cities with dense poulations is often a good start to avoid becoming a victim of a slowing economy. When looking for less established areas but with good potential, search for areas where big development infrastructure projects are taking place, whether that’s a new retail centre, improved transport links or a housing regeneration project.
2. Think long term
As seasoned property investors know, there are many fluctuating variables involved that can make the difference between profit and loss. Even when making smart investment decisions, investors are still at the mercy of both the markets, interest rates and policy changes. But in the long term, history tells us that the trend will always be an upward one. As long as you buy good quality property in desirable locations, don’t overstretch yourself financially and are prepared to ride out market fluctuations by investing for at least 5 years, you should see a positive return on your investment.
3. Do your research
Do your research and make sure you’re making the right investment at the right time and in the right place. Being well informed about the market and its direction puts you in a strong negotiating position and ensures you won’t overpay due to naivety. For clients of ambT Property Partners, our team continually assesses at the market data and makes well-informed projections about the future so we can advise and assist our clients with their investment decisions.
4. Factor rate rises into your budgeting
The Bank of England base rate of interest in the UK currently has much more scope for rising than for falling, sitting as it does as 0.75%. Before buying a property with finance, factor a rate rise into your budgeting.
I know from experience that if a property investment goes wrong due to factors outside of your control it’s distressing but when it happens due to a failure to properly prepare it’s far more so. As the saying goes, fail to prepare, prepare to fail.
5. Remove emotion
Emotions can cause normally smart investors to make bad decisions, I have seen it many times. A common problem I see is that investors will invest in a property because they like it or can see themselves in it. Instead, investors should remove themselves and their preferences from the equation and look at the data. For example when making a hotel investment, personal preference on the type or style of the hotel shouldn’t matter, the decision should be made purely on the fundamentals.
6. Find the right finance deal
Unless you’re buying entirely with cash, finding the right finance deal is important. Shorter term lending often comes with high interest rates, but locking in lower rates by commiting to borrowing for a longer period gives you less flexibility for the future. The right finance deal for you will depend on several factors and will help to reduce your risk by ensuring an exposure level you’re comfortable with. ambT Property Partners has excellent relationships with a number of top lenders and would be happy to make an introduction. Contact our team for help or advice.
7. Don’t try and go it alone
Successful commercial property investors rely on a team of professionals to assist them. From forming a strategy to property management and everything in between, the right team will support you through the whole process. Please do get in touch with me if you would like to disucss how ambT Property Partners could assist you.
If you enjoyed my article this week and found the advice useful, please let me know by leaving a comment.