The five rules of commercial property investing

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Question

The Economic Times has published five commercial property buying rules. Although created for an Indian readership, the rules apply equally to the British commercial property investor.

The first rule is to choose the right location. Ideally, a location should have less than a 5% vacancy. This means that tenants are less likely to leave. Rents and capital growth will be higher in these locations.

The second rule is to buy the best quality building. If there are two buildings in the same area, the one that is higher quality will get rented first.

Rule number three is to find quality tenants. If your building has a tenant who is a well-known multinational blue-chip company, this could increase the value of the property.

The fourth rule is to be careful about charging rents above the market rate. If you charge significantly more rent than similar buildings in the same area, the tenants may not stay long if they can find a cheaper rent for similar quality space in the same area.

The fifth rule is to diversify the profit portfolio. If all an investors money is in one building, there is a high risk of tenants vacating and leaving the investor with no rental income. Investing in multiple properties spreads the risk. Investors should also consider buying commercial property in different cities.

Before an investor applies for a commercial mortgage, they need to create a detailed business plan that follows these five rules, otherwise, their investment strategy may turn out to be less profitable.

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