Commercial Property Investment Myths
Commercial property investment
...it’s not just for high flyers
Our last few blogs have focused on issues relating to renting a commercial property and the ins and outs of commercial lease agreements. For our next series of blogs, we are turning the tables and asking what does it take to become a commercial property investor?
In this month's blog, we'll look at some of the myths around commercial property investment and subsequent blogs will address questions like: why invest in commercial property, what to look for, how to win at auction, and how to manage a commercial property.
According to Statistics New Zealand, about half of people aged 15 years and over own their home. As a nation, we feel comfortable buying and selling residential property and using residential property as an investment. But what most homeowners don’t realise is that investing in commercial property is not so dissimilar and it comes with some great benefits.
But let’s start with some myth-busting:
Myth 1. You need big bucksTrue, banks are not as generous with their lending as they are with residential property, usually lending around 60 to 70 percent of a commercial property's value; however, you don’t have to go it alone. Investing in NZX-listed property trusts can be a more accessible and lower risk way to get exposure to good quality commercial property, as is property syndication, which allows smaller investors to invest in commercial, retail or industrial properties.
Like any investment, it’s not about how much you spend but the quality of the asset you buy that determines success. And like residential property, once you are on the ladder, the sky’s the limit.
Myth 2. It’s high riskThere’s an element of risk with almost all investments, but due diligence and thorough research will minimise that risk significantly.
There are two main components to commercial property investment: the property itself and the lease. The lease arguably carries the most risk, so special consideration needs to be given to this before committing to purchase a property. If it’s tenanted, make sure there is a good quality lease in place and get familiar with the tenant.
Myth 3. It’s complicatedReal estate can be complicated, but commercial real estate is no more or no less complicated than residential property. It’s just a different complicated. Residential real estate is complicated by politics, bureaucracy and legal limitations. With commercial property, local council regulations, zoning, capital expenditure and tenancy issues all come into play.
The advice of a professional property manager or commercial buyer’s agent will help minimise the risks and help you select a property that matches your investment objectives. You don’t need to know everything, you just need to know what questions to ask and to whom.
Next time, we’ll look at the advantages of investing in commercial property.
If you’re already convinced, check out our commercial property opportunities.