Commercial Real Estate Investment
Considering investing in the commercial real estate market? This remains a viable and even lucrative investment, offering inflation-beating returns despite South Africa’s lacklustre economic growth and political instability.
But, commercial property investment isn’t for everyone. It’s especially tricky if you have no experience in it. It can also be quite expensive as it requires more maintenance than residential properties.
It’s important to have a good understanding of the commercial property sector before deciding to make an investment. Investing in the right type of building in the right area is imperative.
Here is a look at various factors involved when deciding to invest in commercial property.
Location Location Location
There are certain areas that have been more affected by the economic downturn, which is why location is important. Property values in metropolitan areas are more favourable as they are more resilient to economic fluctuations.
Realise the Risks Involved
As much as real estate is an investment, there is still an element of risk involved. However, it is only by accepting this element of risk that great and lucrative investments are made.
In addition, there is usually a large capital outlay required to purchase a commercial property.
Make sure that you understand all the factors involved and make sure you make the right decision for you. That means following the basic principles of calculating affordability and forecasting earning potential.
Finance is one of the important elements of investing in anything. One of the biggest mistakes made by inexperienced property investors is to only focus on the bond-repayment figure.
There are more costs involved in the process: rates, levies, utilities, maintenance and security costs all must be factored in.
Also consider the cost of maintenance. This is especially important if you are buying an old building that looks like a bargain. Be sure to do an accurate survey of the state of repair of the building.
It is also very important to test various scenarios to see if the investment is still affordable when interest rates or other costs increase.
Look at The Defects
Calculating the ongoing maintenance of a building is important, but there are other factors to consider upfront.
Finance is one of the important elements of investing in anything.
Survey the water and electricity connections to the property, the state of the building itself, the infrastructure such as air conditioning, fibre connections and cell phone coverage.
Calculate the Cost and Supply of Utilities
Make sure you conduct a careful study of the reliability of the supply, costs and the availability of backup systems. This could be a good value proposition for prospective tenants, especially if the electricity supply can be unreliable.
According to the City of Cape Town, every property has been assigned a certain zoning category (residential, business, industrial, etc.) and development parameters outlining what can be done in the area and on/with the property.
Commercial zoning laws control the type of activities a business may conduct in a particular area and the category of business that can occupy the zoned area.
Make sure that the business you are setting up in a certain area falls under the specific zoning laws in the area.
A commercial property investor needs to be patient. Finding the right opportunity, entering negotiations, renovating where necessary and entering the purchase procedure can take a lot longer compared to a residential property.
As Seen on PropertyFox
At PropertyFox we have a plethora of properties for you to invest in:
Commercial property investment is ideally a long-term investment, as the longer you are invested, the better your return is likely to be, but this means your investment is not liquid in either the short or medium term. Make sure that you practice the patience involved in this process.