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Six Factors To Be Wary Of When You Invest in Commercial Property

Six Factors To Be Wary Of When You Invest in Commercial Property

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Six Factors To Be Wary Of When You Invest in Commercial Property

By: Timothy Frodsham
Posted: Apr 10, 2011

It should come as no surprise that property investment remains strong and more people are expressing an interest to get on board. With the buy to let market saturated, the canny investor would and should consider investment in commercial property, the chances for increase in value and the income generated will only grow as the economy becomes stronger in the next few years. The benefits are obvious and talked about everywhere, but not everything is sunshine and roses in life, so here are six points to be wary of when investing in commercial property.

Empty Property: Commercial property is generally slightly more difficult to fill then residential properties, especially when the economy is not doing well as businesses don?t have the money to fund relocation. You should therefore be prepared for times when the property may be empty in between tenancies.

Commercial mortgages can be more expensive: Taking out a commercial mortgage is inevitably a more costly undertaking than a home loan or a buy to let mortgage. Banks are now charging higher rates for buy to let arrangements but the price of a commercial mortgage is still higher, as are interest rates.

High Insurance Costs: When purchasing any property you will normally be required to obtain buildings insurance because the property acts as security for the loan, but you need to bear in mind that insurance costs tend to be higher on commercial properties. You will also need liability insurance so that you?re covered if someone has an accident on the premises.

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Costs of buying are high: You will generally find that the costs involved in buying a commercial property are higher than a residential property. As commercial properties tend to be larger and more expensive, you will often have to pay 3-4 per cent Stamp Duty. Additionally, your legal and valuation fees are likely to be more expensive than a buy to let purchase.

Expect Rougher Conditions in a Recession: Companies will fall and fail in a recession, meaning commercial landlords can take quite a hit during the lean years. Obviously this doesn?t happen in a recession for residential landlords, there might be a small drop, but people still need a roof over their heads. Be prepared for any sudden turn in the economy as a commercial property owner.

It is a highly regulated sector: Understandably, the commercial property sector is closely regulated by local and central government. Planning consent, zoning and other laws prevent residential areas from being affected by or turned into commercial areas. The law requires you to make your property accessible for disabled users, fire safety regulations must be adhered to and communal areas must be looked after by the landlord, not the tenant.

Commercial Property Regulations: Commercial property lets come with the huge responsibility of ensuring that the building complies with regulations. You need to consider everything to do with health and safety including disabled access, fire doors and fire extinguishers, emergency lighting and power, as well as maintenance of the building in general to ensure that no accidents happen.

As with all aspects of a business venture, think very carefully before purchasing property, it is a major undertaking and can be very costly if it is not thought through properly. It is vital that you do your research and find a good property in a location that is in demand and that will be an asset, not a liability.

More and more people understand the opportunities offered by commercial investment. Whilst large institutions and pension funds have been big players in commercial property in the last, it is possible to get a great commercial mortgage deal and profit from commercial property as an individual investor.

Timothy Frodsham ? About the Author:

Timothy Frodsham writes for Just Commercial Mortgages.com the UK?s No.1 site for the latest commercial mortgage rates and commercial property finance news.

Source: http://www.articlesbase.com/finance-articles/six-factors-to-be-wary-of-when-you-invest-in-commercial-property-4574051.html

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Article Tags:
commercial mortgages, commercial mortgage rates, commercial property investments, commercial property, property investment, commercail, property, investment

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