Buying a commercial property
There are a number of factors to consider when buying commercial property to ensure you make a sound investment.
Calculate rental yield
Rental yield indicates the return you will receive on your investment. For a commercial property you need a yield of at least 5% to cover costs and make a profit. A commercial mortgage company will only lend you the money to buy a property if the rental yield is strong.
Rental yield is calculated by dividing the annual income by the value of the property and multiplying the total by 100.
Consider how to maximise your investment
You might think about buying a commercial property with a business in situ. This can provide you with an income straight away and save you searching for tenants. Before doing so, however, it is important to research the strength of the business. If the tenant’s credit rating falls this can affect the future security and value of your investment.
If you buy a commercial property with business in residence this may mean taking over the existing lease. A solicitor will examine the lease to make sure it protects your business interests.
You can also maximise your investment by purchasing a property that needs refurbishment. As with residential properties, refurbishing the right property in an area of high demand can mean a greater return on your investment.
Choose the best location
Find a location where rental yields are high and where there is likely to be a demand for your property in the future.
Think about the type of business that will rent your property and their priorities. Will transport links be important to them? Will they need passing trade? Can they afford the local authority business rates? Will a rural location suit them, or do they need to be located on an industrial park?
Plan your finances
Most commercial mortgages require a deposit of at least 25%. There are two types of mortgages, owner-occupier mortgages, and commercial investment mortgages. Owner-occupier mortgages are for buyers who plan to run their own business from a property. Commercial investment mortgages are for buyers who will lease their premises to another business.
Commercial mortgage rates vary depending upon the type of property, the industry sector, and the property investor’s prior experience.