Commercial property is an investment that can make good profits, so it’s not surprising that many with an interest in property are having their ears pricked by the sector.
The independent nature of commercial property
Property values tend to be independent of the movement of the stock market. This means that any rise or fall in the stock market does not usually affect commercial property prices. At times when stocks fall, there are unlikely to be corresponding falls in commercial property prices.
During the financial crisis that started in 2007, commercial property lost value, which shows that property investing is not risk free.
Types of commercial property investment
Direct investment in property is buying all or a share in the property. This can be financed with a commercial mortgage. The property can then be redeveloped and sold for a profit or rented to tenants. Some commercial properties are worth several million pounds so are beyond the budget of small investors, but more modest commercial property such as workshops, retail shops and small office blocks are more affordable using a commercial mortgage.
To invest in rented residential accommodation, investors need a buy-to-let mortgage, which is a type of commercial mortgage specifically for residential landlords.
Investors can indirectly invest in commercial property by investing in property funds that are traded on the stock market. Property funds can go down as well as up in value, so investing in funds is more volatile than direct investments.
How to earn income from commercial property
There are three main ways to earn money from commercial property:
1. Income generated from rents paid by tenants
2. Capital growth or the increases in the value of the property
3. Refurbishing the property to add value then selling it for a profit
Benefits of commercial property investing
A major benefit of commercial property compared to residential property is that tenants tend to stay for much longer. Lease length are typically five years or more. There is less risk of a commercial tenant defaulting than a residential one.
One drawback of commercial property is that it can take a long time to sell, so selling a commercial property asset cannot be relied upon to raise funds quickly.
Planning
Research and planning is vital for property investors. A sound business plan that can be relied on to produce reasonable profits from the property investment is essential. A commercial mortgage lender will require a detailed business plan before making a loan decision.
Applying for a commercial mortgage
After an investor has found a suitable commercial property and has developed a sound business plan, they can talk to Ascot Mortgages. We will look at the deal and match the borrower to the best commercial mortgage lender.
An expert here can talk through all the commercial mortgage options. You may want a mortgage with fixed interest for several years so that you can budget for regular monthly mortgage payments. You may only need a loan for a brief period of time, in which case a bridging loan arranged by Ascot Mortgage may be more appropriate.
