Investing in property is an excellent way to save for the future and diversify a financial portfolio. However, like any financial decision, investing in commercial property should be taken extremely seriously. The potential for significant financial gain can draw many people into jumping on commercial property investments head first. Unfortunately, some of those people don’t bother spending any time researching and planning, so they don’t see the underlying rocks and are driven to financial ruin because they chose a bad investment.
By no means is that meant to scare you away from investing in commercial property. But it is an important reminder that this sort of financial decision must not be made as without proper caution and forethought. As long as you do your research and spend time planning, you should be quite successful in your investments.
Deciding where to begin your research can be a daunting thought. But don’t despair, there are a lot of sources and routes you can use to gather information. One such route is to look for commercial projects by Unitech Groupand other real estate agencies. They will have a great deal of information about markets and singular properties.
Type of Property
It might be easy to fall into thinking that all commercial property is the same. But in truth, there are a number of different types of commercial properties you can invest in. Although many basic factors and circumstances are the same across all types of properties, each separate category has subtleties and details that are unique to them. Nolo lists six different types of commercial property. These properties are:
- Retail buildings
- Office buildings
- Warehouses
- Industrial Buildings
- Apartment complexes (these ride the line between commercial and residential however)
- Mixed use buildings (can house offices, stores, and apartments)
Deciding which you wish to invest in is an important first step to take. Going into all the small details and nuances that come with investing in each of these would take quite some time, so it’s recommended that you look into each type of property as a part of your preliminary research. But once you’ve decided which you would prefer, you can begin the next planning your next steps.
Location and Infrastructure
After deciding what type of property you wish to invest in, your next step is research into locations and the status of the local markets. According to the Indian Express, it’s incredibly important that you determine the stability and integrity of the location you’re looking to buy into. You need to check to make sure the necessary infrastructure, like public transportation and solid access to utilities, is durable and reliable. Making sure the supply and demand dynamics in the area are solid is critical as well. If those factors aren’t taken into account, you can find yourself buying into a micro-market with low growth opportunities and high vacancies.
In doing all this research, you’re not just checking the reliability of the location you want to buy into. Using the information you’re gathering, you should be able to do some calculation and estimation about the chances for future growth and development in that area. Population growth, infrastructure development, and the state of the economy (both local and national) are all important factors that you should take into account when deciding whether to buy or not.
Documentation and Certifications
Once you’ve found a location and some property you are interested in, the next step is to get in contact with the current owner or builder and make sure they have all the necessary documentation and certifications for the property. Nitin Bhatia provides a good list of all the documents needed, some of which include: RTC Extracts, various deeds, Katha Certificate and Extracts, Joint Deveopment Agreements, and any building plans. There are quite a few other documents and certificates you’ll need to get your hands on for various reasons. You’ll need these some or all these documents when dealing with getting a bank loan. You’ll also need them for tax purposes registration with the local government, and dealing with any potential legal tangles. Hiring a lawyer or other professional to help you with this aspect can be extremely helpful.
Ownership Woes and Lease Aggreements
Investing in commercial property comes with a whole different set of ownership responsibilities and factors when compared to residential investments. Ramesh Nair, the COO of Jones Lang LaSalle told The Economic Times that, “If you are an investor looking at an income producing office asset, look at the break-up of cash flows, the vacancy factor, expenses such as maintenance, property tax and building insurance, lease term, lock-in period and expiry dates, long-term capital appreciation potential, and refurbishment, refinancing and repositioning potential.”
It’s a relatively long list, but each point should be considered carefully. And factors like lease agreements, cash-flow breakup, and maintenance costs aren’t critical to just office buildings. Just about every commercial property investment will require you to deal with most, if not all of the factors named by Nair.
While investing in commercial property should not be taken lightly, as long as you do your research and plan accordingly, you can make significant financial gains.
I have a lot of friends who talk big about how they want to “get a few rental properties.” For some reason people think that buying property doesn’t include a whole bunch of work. Great write-up that touches on the tip of the iceberg for commercial properties!