Eight steps to becoming a successful commercial property investor
Commercial property is becoming an investment of choice for a broader cross-section of investors but there are some steps to take to ensure the best prospects of success.
Embarking on the journey of commercial property investment requires a strategic approach and a keen understanding of the dynamic real estate landscape. The allure of substantial returns can be tempered by the complexities inherent in this sector.
With nascent signs that the heat may be leaving some parts of the national residential property market, commercial property becomes a more compelling option for many investors. API Magazine’s latest Property Sentiment Report shows that 10 per cent of respondents are planning to invest in commercial property in 2024.
To guide you through this intricate path, here are eight essential steps instrumental to sculpting a successful commercial property investment journey.
From financial considerations to effective negotiations and property management, each step is designed to empower you with the knowledge and skills needed to thrive in the competitive world of commercial real estate.
1. Money habits:
How much is enough? For your initial deposit, we believe a good starting point is $100,000 for residential and $200,000 for commercial – based on an entry-level $600,000 purchase price.
2. Investment mindset:
Without the right mindset, you’re going to struggle to understand the entire property landscape. Taking a national approach to investing and continuously researching and investigating new markets and opportunities is crucial.
3. Assembling your expert team:
It is essential to have a specialised team of professionals to ensure success. A successful team in residential investing may not be suitable for commercial investing, so developing relationships across both areas through experts in the field is imperative to success.
4. Asset selection:
There are numerous methods to identify the ideal property. Additionally, there are multiple asset classes that all respond differently depending on the current economic cycle. You must equip yourself with the necessary knowledge to uncover the best opportunities and understand the growth drivers and other elements that affect the economy. Property syndicates, or managed property funds, also provide real estate investors with a chance to buy into property types they might not otherwise be able to afford.
5. Method of sale:
Once you’ve selected the right asset, it’s time to get to grips with the different ways to buy it. Each has its own set of rules, all of which must be fully understood. We’d recommend securing a property with a contract subject to finance approval and significant time for due diligence.
6. Finance:
It is important to have a good broker who can steer you in the right direction to fund your properties over time to be able to refinance and expand in the correct manner to build that portfolio. Refinancing is a part of the economic cycle of the property market and will help you grow a larger commercial property portfolio and secure a better return on your equity.
7. The negotiations:
To finalise the deal, you must be ready to use your negotiating skills. Do your research and remove any sentiment that usually comes with buying a home. This is an investment opportunity, not your principal place of residence, so see it for what it is – income.
8. Managing the property:
In many cases one may choose to self-manage. It is possible, but remember it is a full-time job and there are moments where you may need to be on the ground.
It is important to have the contacts in place for maintenance, rectification works and general upkeep of the property.
Liaising with the tenants when it comes to new leases and option renewals is also important, so good relationships need to be maintained there too.
It is a lot easier to outsource. Get to know the agents who will be taking care of the property while you’re not on the ground and make them take you every step of the way.
Industry experts are hard to find so don’t be alarmed if you have to change agencies a few times. It is all part of the learning curve.
In the realm of commercial property investment, success is not merely a product of chance; it is a result of meticulous planning, informed decision-making, and continuous learning.
The eight steps outlined above serve as a comprehensive roadmap to navigate the challenges and capitalise on the opportunities in the commercial real estate market.
By integrating these steps into your investment strategy, you not only increase your chances of building a lucrative commercial property portfolio but also position yourself as a savvy investor in an ever-evolving market.
