Three questions first-time commercial property investors should ask

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Investing in commercial property can be a good way to make a profit through capital growth and rental income. For the first-time inexperienced investor though, there are a number of questions that need answering before applying for a commercial mortgage to purchase property.

1. What do I need to qualify for a commercial mortgage?

You will be unlikely to be offered a mortgage to cover 100% of the purchase. You will be expected to pay a deposit of 25% to 30%. For a large commercial building, this could be many thousands of pounds.

You need to be able to prove that you can afford the mortgage repayments. The lender will require documents to prove your income. If you are self-employed, you will have to show audited accounts.

If you are purchasing the property to rent out, the lender needs to assess that the rents you want to charge are achievable and likely to provide a profit for you.

You will also need a sound business plan that shows the income and expenses of your new property business.

2. What are the risks?

Property investing, like all investments, is not risk free, but the risks are low.. The commercial property market is in decent shape, but there is no guarantee that the market will remain buoyant. The business plan of most investors is based on property prices rising over the years, but if there is a property slump, the building could lose value.

An income from property is reliant on rents being paid. If a tenant leaves, it can take a while for a new one to be found. If the property is empty, there is no rental income, but a commercial landlord still has to pay maintenance costs and may need to pay for security to prevent break-ins.

Commercial property trends change; for example, the rise of online shopping means there is a high demand for warehouse space. This has adversely affected shops, with some high-profile retail companies closing many of their shops. An investor needs to be aware of business trends.

3. What are the benefits?

There are various benefits to investing in commercial property, not least a good income potential from both rents and capital growth.

A commercial landlord can develop relationships with their tenants, and provide a good service. If a landlord does not want this level of commitment, they can use an agency to handle all the administration of the leasing. In this way, an investor can earn an income without needing to work many hours.

Unlike traditional investments, you have a greater control over your investment. You can make your own decision about upgrading the property, choosing your tenants or selling the property.

After you have bought your first commercial property, it can make it easier to borrow money to grow a portfolio of investment properties.

Talk to an Ascot Mortgages advisor about how you can start investing in commercial property. We will be able to find you the most suitable commercial mortgage deal to buy your first property.

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