What to be aware of before you invest in commercial real estate
Investing in commercial real estate can be an exciting and lucrative endeavour. Whether you are thinking about investing in premises for your own business or planning to let space out to other businesses, property is always a great addition to your investment portfolio. Seeff Hartbeespoort & Surrounding Areas takes a look at some of the factors to consider before making your first commercial or industrial property investment.
Those who owned commercial or industrial property during the COVID-19 pandemic discovered just how much external factors can affect your investments. While owning a business property can be incredibly lucrative, there are potential challenges that need to be considered. For starters, economic upheaval will typically affect commercial and industrial properties more than their residential counterparts, because even when things are going badly wrong, people still need somewhere to live.
Another important issue to consider is liability. Since commercial and industrial properties have far more visitors than homes, there is a much higher chance of someone sustaining an injury on your property.
As would be the case with a residential property that you let out, you will need to make sure you have funds available to cover the cost of your property in periods when you do not have a tenant. Due to the issues that can arise when you are a commercial or industrial property owner – particularly if you are leasing property out to other people –it is best to enlist the services of a property management company to help you manage your investment.
If you’re in the same situation as most property investors, you’ll need a loan to secure your commercial or industrial property. It’s important to know that typically, banks will only provide finance for up to 75% of your commercial property purchase. You’ll need to have the other 25% saved up as a deposit.
Buying a commercial property to house your own business
While buying commercial property seems like a logical goal for every business owner, this is actually not something supported by every business model. Like any other property investor, an entrepreneur or small business owner must weigh up the pros and cons of owning their premises and being a tenant.
The biggest advantages of owning your own commercial premises revolve around the long-term stability and scalability of businesses.
- If you own your premises, there is no need to worry about expensive rental increases and lease renewals.
- Once your business starts to expand, you are free to extend the building to accommodate growing production requirements.
- You could choose to sublet an area of the building to earn extra revenue.
At the same time, commercial property owners can face various challenges.
- Buying commercial property could have a negative impact on your cash flow.
- Owning premises makes relocating more difficult if your business or personal needs change.
- As the owner, you will be directly responsible for managing and maintaining the property.
Ultimately, it’s up to each business owner to weigh up the pros and cons of each option and decide whether it makes sense to lease or buy their premises.
Choosing the right commercial or industrial property
If you’ve decided to invest in a commercial property, it is critically important that you choose the right one. You want a property that offers 24-hour security as well as secure access points and CCTV cameras. Other important factors to consider include visibility and signage, as well as access to highways and arterial routes. For example, businesses and entrepreneurs looking for premises in the Hermanus area would do well to consider Flagship Business Park, which offers great visibility from the R43 and fantastic safety measures including security fencing and CCTV.
Commercial property FAQs
- Is investing in commercial property a good idea?
Commercial properties investments typically offer higher returns than residential properties, which makes them a great choice for savvy investors. The earning potential on a commercial property is significantly higher than residential properties and since your property becomes your tenant’s business premises, they are likely to take good care of it.
- How profitable is a commercial property investment and what is an average return?
Great news for commercial property investors is that these properties tend to provide a better return than other property types. Average returns range from approximately 8% to 12% on well-chosen commercial properties.
- What type of commercial property is most profitable?
The most profitable commercial property type will depend on the area you’re considering investing in and current market conditions. For example, mixed-use urban commercial developments are currently proving popular for investors in Cape Town. Following international trends, these spaces provide an ideal space for the popular live-work-play lifestyle.
If you’re looking to invest in real estate, be it commercial, industrial, or residential – the Seeff team is here to help.
