Monday, October 09, 2006

Purchasing a commercial investment property has become very popular nowadays. Rental income can be a nice supplement to your salary and as the value of the property increases, you may at some point sell it for more. The rental returns may help you save some money to buy your own place. However, with all these potential benefits, your success is not guaranteed. To increase the chances for a successful investment, there are a few steps that you should follow when buying the place.
Where To Buy?
With commercial investment property there is no point in taking an emotional decision when deciding on where to buy the place. As you buy it for profit, the most important rule is to buy in a growth area. Experts regard suburbs as promising areas for a commercial investment property. The best strategy is to inspect as many areas as you can to see what their offer is. The proximity of public facilities, shops and restaurants is also important.
What To Buy?
While houses may be nicer than units, they are also more expensive and more difficult to maintain. If you purchase an appartment, the owners share their expenses when something goes wrong. A room with a view is a great extra, but you shouldn't spend too much just to have a beautiful view. If your commercial investment property is too expensive, you will also need a high rent to recoup your expenses and you may have difficulty in finding tenants. If the property is currently rented, it gives you a chance to gather some information on the rental history of the place. This way you can estimate your revenue more accurately.
Getting A Loan
Some lenders may have higher interest rates and require a higher down-payment for a commercial investment property loan than for a home loan. This is because they feel the risk is higher. However, if you shop around a bit more, you may get lucky and be able to get a home loan for your commercial investment property.
Renting The Place
When you estimate your rental revenue, bare in mind that there might be some short periods when you won't have any tenants (e.g. during repairs or when tenants move out and you have to find new ones). You also have to figure out how long you want to keep your commercial investment property. In time, the rental income may exceed the mortgage repayments and you will become positively-geared.
If you choose to manage the property yourself, you can save the property management fee. However, it can be a very time-consuming and stressful activity, especially if you have tenants complaining about every little thing. Contracting a property manager may get you rid of all this hassle, but it will also cost you some money.