When you start looking for commercial property to invest in, there are fundamental factors you need to consider.
When you go to buy a residential investment, for instance, you’d never just go out and buy the first thing you come across that you can afford…
You pick your area, the kind of property you want, etc
The location of a property can mean the difference to having trouble free ongoing income or not.
Of course, location is not the only factor – but it’s pretty critical…
Here are a few of the factors that are at the top of my list when I start looking.
Like I said this is the No. 1 issue.
You want to be close to customers, of course, this depends on the type of investment you are thinking of, for example, let’s say that you are looking at an investment with a café in it.
It’s obvious that it’s going to be best if it’s in a position where there’s passing customers all day.
No good having a cafe out the back of beyond where no-one goes.
If you are choosing an industrial investment, it may be best to be located in an area that relates to industry.
Obviously, there are industrial areas, but some are better than others. Getting something near major transport hubs is ideal, main arterial roads, airports, shipping ports, etc.
If you can’t manage this, look for industrial areas that have a theme. Often Mechanics, panel beaters, transmission specialists, etc. will all crowd together.
That means that if you own one of these you have not only the stability of the tenants business but that is also supported by the demand of others to be in that same area.
Once you have chosen a location, you can check out the physical condition of the building i.e. are there environmental issues or potential liability issues, such as asbestos, major repairs, etc.
Are there current fittings that the tenant has put in and what are the lease conditions for if they leave? Do they leave their fit-out or do they have to remove it and take it with them, returning the building to it’s original state?
It’s important to check with the local authorities what use the building can be used for. If there is any restriction at all you need to know about it now.
Also have there been regulatory changes since the tenant first took possession? That may mean that some things need upgrading.
It will be best if designing is flexible so that you may consider other parts of tenants down the track.
4-Limitations on exterior and interior.
Whether due to zoning laws or building codes or covenants, there may be limits to changes or alterations you can make to the property. A good example is a building that is in an historic area and subject to restrictions on changes that can be made to the façade.
Also the layout of the building is very important for possible future change of use.
5-Adequacy of access and parking.
It’s great to have parking on site. If you were looking at two properties in one has parking in one doesn’t, I would prefer to buy the one with parking.
We can be creative here though by using car stackers or even a turntable. If there is a lot of parking you may be to rent that out to separate tenants.
And here’s a bonus key – it’s the one that almost no one realises the true potential of…
Are there upsides to the property that you can use to expand the rent or give you a development opportunity? These are not always obvious and more often than not the vendor’s don’t even recognise the potential of the property.
But if you can train your eye to recognise the potential, you can choose properties that have those hidden potentials and create fast equity as well as excellent income