Commercial Property Investment – High Return Game

Buying a property for commercial purpose is a huge investment. That is the reason why investing in commercial traditionally has been the job of only high net worth individuals or institutional investors. However, time has brought change. Many types of investors are getting into the game.

Investment Routes

There are 3 main ways to invest in commercial property: buying the space directly from a developer, purchasing the commercial developer's share from the stock market or investing in a real estate fund that focuses on commercial real estate. Many developers, particularly in big cities, are offering small spaces in A-Grade buildings.

Investors looking towards getting retail space can now have multiple affordable options. The major advantage of smaller units are that it is easier to find tenants for the spaces and the premises can be used by the investor his or herself if they happen to be entrepreneur. Today, professionals such as doctors, lawyers, and auditors are investing in commercial properties for profit and for self use. The private bankers and WMFs (wealth management firms) encourage their clients to buy commercial properties as the properties can protect their clients from stock market volatility and inflation. Even banks are now lending 50 to 60 percent LTV (Loan to Value) to customers for these properties. The exact percentage depends on a customer's net worth and their ability to repay.

What to Look for

Despite wide array of price options, buying commercial property definitely is not child play. The process requires foresight, research and thorough planning. The followings factors should be taken into consideration before investing in a commercial property:

• Location: Before making an investment, buyers need to establish the location's soundness and its demand-supply dynamics. If buyers do not research enough, they may end up making the wrong investment.

• Economy: Buyers should also note the effects of population growth, the job market and the respective market's economy is sound.

• Developer: Investors should check the credentials of the developer, the potential infrastructure development, the quality of property management and the public transport accessibility to the project.

• Dynamics: While investing in retail business, one needs to consider the footfall, the frontage and the adjoining catchment's dynamics.

• Amenities: People who look to make an investment in commercial property need to ensures that a property's given amenities fulfil their business needs. If someone wishes to invest in an office, they need to consider breakup of cash flow through maintenance expenses, building insurance and property tax. They also need to check the lease term, the long-term appreciation potential and the refinancing and repositioning potential.

• Professional Advice: Before making any investment, investors should seek the help of a lawyer and a knowledgeable commercial property real estate agent.

Why Invest?

The rental income from commercial property generally is 9 to 12 percent while residential property only offers 3 to 4 percent. The sheer pride and numerous benefits of ownership are just two reasons why you should look at commercial investment.

Remember, you not only make profit on the sale of appreciated property but also from rental cash flows. Your capitalization rate actually measures the demand of the property.

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