Can You Make Money From Commercial Property Investing?

Investing in commercial property is different from just buying a house and hoping for the price to rise. When you purchase commercial premises, you’re buying something that can generate a productive return (so long as you find the right tenant). 

When most people think of investing in the property market, they think about homes. But the property market is much bigger than private dwellings: it includes anything that can be classified as a building and sometimes, land itself.

Making money from property is usually considered a fool’s errand: after all, many people who bet that house prices would continue rising indefinitely before the financial crisis wound up getting burned.

Commercial property for sale offers many advantages for people looking to make a little bit of money on the side. It’s a way of diversifying your portfolio and not relying on stocks and bonds to make a return.

Commercial Property Investing: The Basics

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The commercial property market is primarily shops, warehouses, retail outlets and factories. It’s anything that businesses want to rent to conduct their operations. If you own all or part of commercial premises, the company pays rent to you, and you stand to profit, so long as you can make enough money from it to cover your costs.

And here’s the problem with commercial property investing: the costs. Not only do you have to service a mortgage to a bank (if you took one out) but you may also be liable for maintenance which could cut into your profits. Making money from letting out commercial property isn’t as easy as you might think.

What Are Real Estate Investment Trusts? Are They Worth It?

Many people think that the way to make money from a commercial property is to buy it outright and then lease it to tenants. But this is actually a mistake, especially for small-scale investors. The main issue is one of risk: when you put all your money into one asset, you’re reliant on having reasonable occupancy rates for the time that you own it. To successfully navigate the commercial real estate landscape, it’s vital to build a strong foundation of knowledge. Start by exploring this commercial real estate 101 resource to better understand the strategies and risks involved.

Of course, high occupancy rates and tenants paying on time can’t be guaranteed, so commercial property doesn’t seem like such a good way to make a side income after all. That is until you start using real estate investment trusts to diversify risk.

Real estate investment trusts are a way of owning property without having to do any of the management yourself. What’s more, you invest in a share of a basket of real estate assets, not just one individual shop.

Of course, there’s no such thing as a free lunch. If you do decide to invest in one of these products, you’ll have to pay a management fee and your overall returns may not be as high as if you buy outright.

That then begs the question: when should you invest outright? If you do decide to buy a commercial property, you want to buy one in a location that’s likely to see sustained business demand. Over the long-term, your premises should be filled for long enough to provide you with a decent return.

Before you invest

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.

Another consideration before you invest in any property, commercial or not, is to seek legal advice from somewhere like Accuro Maxwell. Getting legal advice on property is important, because the sale of a property, commercial or residential, is a legal transaction. When it comes to commercial property there can be some more ‘red tape’ to consider, so getting stellar legal advice is what can make all of the difference in your decision to invest. Equally important is securing comprehensive property insurance to protect your investment from potential risks and liabilities. Exploring options like home insurance can provide coverage tailored to your property’s specific needs.

All investments involve some degree of risk. If you intend to purchase securities – such as stocks, bonds, or mutual funds – it’s important that you understand before you invest that you could lose some or all of your money.  

If you’d like to dip your toe in the investment water, give these free/low risk investments a try:

  • Robinhood – When you open a Robinhood Invest account, you’ll get a free share worth £5-£100 when you deposit £1. Earn up to $1500 from referrals every year.
  • AJ Bell Dodl – Get a £30 voucher (various retailers) when adding £500 to an Investment ISA, Lifetime ISA, Pension, or General Investment Account.

Thinking of Buying a Property?

There are a number of questions to ask when buying a commercial property, such as where you want your business to be located, and how much money you can bring to the table. Beyond collecting rental income and benefiting from long-term capital growth, savvy investors also take advantage of tax benefits like depreciation on Australian investment property. This allows you to claim a deduction for the wear and tear on the building and its fixtures, significantly reducing your taxable income. When combined with strategic purchasing, solid lease agreements, and smart financing, these factors can contribute to a profitable and sustainable commercial property portfolio.

It is essential to do your research. Here are some useful posts that may help you on your property investment journey.

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