Many private investors have dipped their toe in the residential buy-to-let market. Some consider putting their money into commercial property as a way of spreading risk across their portfolio.
Commercial property can often offer a lower cost alternative to residential investment. It can also offer more security, as typical lease lengths are between 5-10 years, much longer than you would get from a residential property, where tenancies of six months or a year are more typical.
Investing your money in commercial property isn’t all plain sailing however; it isn’t just a question of paying over the money and collecting the rent every quarter. Depending on which sector the property is in (retail, office, industrial, etc.) and the quality and location of the building, an investor in a commercial property should anticipate net rental returns of typically between 5 per cent and 10 per cent per annum.
To maintain this level of return however, your investment has to be actively managed. This isn’t just about making sure the rent is paid on time and ensuring the fabric of the building is well looked after. There is a lot more to holding commercial property than might at first meet the eye.
Clearly the collection of rent and insurance, and for multi-tenanted commercial properties, service charge, is vitally important. An investor should attempt to create a good relationship with its tenant, and maintain regular contact. Such connections should help the investor landlord identify at an early stage signs that a business tenant is not performing so well and who might be at risk of at best: paying rent late, or at worst: not at all.
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