|
|
|
Commercial Property Introduction Commercial property investments are preferred by larger investors with very large sums to invest as the number of properties and therefore the administration is reduced. Yield may also be easier to predict, as long as the tenants you can attract are good. In the UK, commercial property of any size is likely to be too expensive for an individual investor but may be worth considering for groups of investors. In other countries it can often be found far cheaper, but you really need to know what you are doing if you buy outside of the UK or USA. The USA commercial property market has something for all pockets, varying from apartment blocks which are really just an extension of Buy to let, (H3 recent find - 18 apartments in unit, all done up £80k), through mixed developments (H3 recent find - theatre and 12 apartments located in tourism area, but in need of renovation around £70k), to full commercial shopping centres. You have to know what you are doing, but some fantastic returns are possible, with total recovery of cost within 3 years not uncommon. Elsewhere commercial property may also be affordable, but has more potential problems than housing stock, so unless one has expertise in the local market and type of property, it should be considered a high risk. Commercial property can include amongst others
Large amounts of commercial property is for sale every month in auctions, through business transfer and specialist agencies within the UK and many sources within the USA. As a part of a pension fund The use of commercial property in an individuals pension fund or wealth creation project, can be justified as long as they fully understand the risks, property, area etc. Most are a considerably larger risk than residential property, and voids (unlet periods) can run into years in some cases. Where it does appeal, it has to be very carefully researched, and all the potential outcomes understood. You may also have on occasions to look at the value of a business as opposed to that of the property alone as in the case of a hotel. For most people, it is wiser to become involved in commercial property in the UK as part of a consortium or franchise management where a larger spread of property and risk can be obtained or where there is specialist knowledge and experience available. With USA commercial property there is usually sufficient support available and markets are well understood. The general movement into commercial property As residential property has become more expensive, many investors have started to look at the commercial market, where perhaps many bargains can be found, and in many areas there is considerable potential for equity growth. You will hear of groups of footballers and managers getting involved in London commercial property, and perhaps see some who have done well in 'buy to let' now starting to move into some commercial holdings. Generally there are many funds outside the UK, buying into the UK commercial market place, and many other funds involved that would have historically been involved in equity investing, which perhaps indicates commercial prices are likely to increase quite rapidly. Commercial property may for many be easier to understand than the residential marketplace, especially if investing in property that is let out on long leases to well known companies. Specialist franchisees As an individual or a part of a franchise or consortium group, you may be able to outperform the commercial market generally by a wide margin if you become a specialist. Identifying a need and meeting it, or adding value to an exiting business. The value of a hotel for example is only in part connected with its building, and decorative condition, but also its turnover and profitability. If therefore your consortium bought a hotel that had good management, and then made some changes, perhaps upgrading rooms or adding more, maybe finding new business or making other changes that increased turnover and profitability, then you can see that the value of the hotel would be greatly improved. The reverse also applies, if you upset and lost a good chef, and customers were to come to consider it not to be good value, then it could well decrease in value. Good weather and people stay in Britain more and turnover increases, poor weather or some disaster like foot and mouth and hotels can be very quiet while the staff wages still have to be paid. The hotel, guest house, b&b market and similar are areas we have put a lot of interest into within clubs services, and ideal areas for franchises. All may not be possible You might look at a small town and see a large unoccupied shop, perhaps an old supermarket site left after the supermarket moved to an out of town site. The answer to you might be obvious, get it, and let out space within it so as to have many shops within a shop. However this quite logical step might upset many, for example someone else may have the franchise to run the market hall, and bye laws or other restrictions exist to protect them, perhaps the fire people will consider the arrangement to present a fire risk, or the local planners see it as a change of use. This example perhaps may illustrate the importance of fully checking out any possibility. Increased risk Most property companies that fail will be involved in commercial property, some by just not understanding their market, others by changes in the economy, demand or fashion. Some industries and in particular providers of large empty spaces, industrial sheds on shed parks or office blocks, may have very long periods unlet so must have cash flow to survive this even in they have good growth in value. Changes in demand, and in particular the movement away from small local shops, can mean that many of these will eventually be remodelled as houses, with a potential additional cost and maybe a drop in value. The reverse could also apply, a shed park of low cost units may make an ideal site for a new supermarket or shopping complex, with considerable extra value, or the old industrial site may become a site for a new housing estate. It then comes down to gaining planning permission and persuading the planners that the area can beneficially be used for another use. In residential property a wide spread of types and areas is ideal to spread the risk, and while a geographical spread can be worth considering in the commercial market, we feel there is considerably less risk and greater profits to be made by becoming a part of a specialist group, and within the group, for people to look at specific areas. In this way a lot of expertise can be gained quickly. Fortunes to be made or lost It is our opinion that there are enormous profits to be made in commercial property, but that the thought and research necessary is far greater than the residential market. We would therefore suggest a degree of caution, and perhaps a group or consortium may be the best route for those who wish to become involved.
Articles and publications We have decided to add articles to the publications section rather than here, as we want to avoid the idea that we can in any way here undertake the same level of beginner instruction as we can within the 'buy to let' and 'self build' areas. While there are similarities and overlaps, we take the view that in order to become involved in these areas you need to gain a better understanding or possibly have considerably more support.
Club services Both the finding and franchise services, can cover commercial property, including the executive H3 service. We have specifically been looking at the hotel, guest house, B&B and similar areas, for developments of franchises with individuals or groups of members.
|
|