Buying a commercial property such as a rental space is a costly undertaking that requires intense analysis of high accuracy before making a purchase. It is a laborious process that may be a tad confusing to new investors. Your first commercial property investment has bigger implications that can either prove beneficial or disastrous. As a beginner, you will require investment tips from established agencies. Below are top five factors that you need to consider before making your first investment.
Identify the Market Drivers in Commercial Properties
The first factor to figure out should be the demand. Commercial demand differs from residential demand. You should, therefore, avoid making uninformed decisions. Economic activities, population, and the average income per capita are the main drivers of commercial market. The economy is always on acceleration thus investing in the right area means your property will continue to inflate in value year by year.
Population determines the level of economic activities being carried out in a certain area. Locations with dense population create demand for many services. This includes the building of shopping centres to meet the consumer demand. Recreational hotspots, social amenities, and stores start opening up. Investing in these locations will prove a great success.
Consult Your Accountant
Investing in commercial buildings requires proper planning and financial freedom. Ask your accountant or any established individuals to help you with a sound budget. Look for hidden costs, taxation, and land rates before going to the bank. The accountant should help you understand the complexity of commercial investment regulations imposed by different bodies of the government. Also, they should determine whether your purchase will be considered as a personal or corporate transaction.
This refers to the age difference in a population. Ideally, population segmentation will help you determine the type of activities being undertaken and the demand trend. For instance, locations with numerous colleges and universities are perfect for building residential properties. Recreational premises and other facilities targeting young people will be on the rise. Commercial investment in these locations will automatically prove beneficial. Also, the lifestyle of the different age groups is different. It is important to determine the dominant age group for best returns on investment. Locations with younger couples will require childcare facilities while the old age groups require health facilities.
The amount of returns you expect either monthly or annually from a commercial investment is crucial as a beginner. The driving factor here is your financial status. If you are investing with borrowed money, choosing locations which will give your property higher returns will increase your chances of clearing the debt. Normally, the average returns are between 10-11% per annum. The rental income of the property should be determined from the start. You should have a crystal-clear picture of the demand graph. The location should be within areas of economic growth. This prospects a future increase in rental cash flow due to the rise in demand for space.