Commercial property investment tips for beginners

As with any new endeavour, it’s wise to do some research before jumping in feet first.

Here are 10 commercial property investment tips for beginners.

1. Have a plan

Jay Anderson, a property strategist and buyers’ agent at Jay Anderson Property, said having a plan is key.

“A solid investment plan is the basis of good financial management [but] creating an investment roadmap is not a one-size-fits-all endeavour,” he said.

“An investment roadmap takes your ideas, goals and opportunities into account, as well as constraints such as income and budget limitations. It guides you to make good investment decisions to achieve your objectives.”

2. Engage professionals

Arjun Paliwal, head of research and founder at buyers’ agency InvestorKit, said given the complexity of commercial property investment, it makes sense to seek help from those in the know.

“It is complex and relatively strange to many investors, and you probably don’t have all day to do [all] the research. Therefore, it would be more efficient to get help from professionals who know the market, are equipped with data and have connections,” Mr Paliwal said.

3. Take the emotion out

Scott O’Neill, the founder of Rethink Investing, said when considering a commercial property, investors should use their heads, not their hearts.

“The mindset is different. It has to be 100% profit-based, not anything emotional at all, which is often a part of residential property investment,” Mr O’Neill said.

4. Understand the market

With the commercial property market constantly shifting and evolving, it’s crucial to keep up with the latest trends, Mr Anderson said.

“Potential investors can easily get caught up in the excitement of making a big deal and forget about all the important information they need to learn before making an informed decision,” he said.

“This means examining property value changes, from areas that are popular to those that are less so. It may also means learning about specific industry technologies and where and when they are expected to be adopted, as well as national and local economic and industry trends which may affect the income security and long-term performance of your investments.”

5. Buy properties in good condition

Another tip is to look for properties in tip-top condition, according to Mr Paliwal.

“The disruption in global supply chain and Australia’s shortage in labour are causing construction and renovation works to become much more expensive than before and are taking longer to complete,” he said.

“Therefore, it could be a good idea to buy a property in good condition and ready to lease instead of something with renovation potential, as that would bring uncertainty in terms of cost and time.”

6. Focus on location

One thing residential and commercial property has in common is; location, location, location, Mr Anderson said.

“If you’re looking to invest in commercial property, don’t underestimate the importance of location and type and size of the property. The return on your investment depends on supply and demand, so make sure you take these factors into consideration before you buy,” he said.

7. Buy tenanted properties

Mr Paliwal recommended buying a tenanted property. “You get rental income from day one and don’t need to worry about finding a tenant for years to come, during which you will further strengthen your portfolio,” he said.

“It is one of the best ways to mitigate risks especially when you just start your commercial investment journey.”

8. Everything’s up for negotiation with the tenant

Mr O’Neill said understanding the power of negotiation is important to first-time commercial investors.

“When you purchase commercial property it’s all about the agreement with the tenant/the business using the premises and many people don’t realise absolutely every term can be up for negotiation,” he said.

9. Diversify your portfolio

As Warren Buffet says “don’t put all eggs in one basket”. Mr Anderson said many investors fall into the trap of investing in one or two investments or sectors.

“Diversification is a method that can help investors minimise their portfolio risk. It will create the possibility to reduce the risk of loss by limiting your investment in one type of investment or sector,” he said.

10. Set standards for selecting tenants

Tenants can matter as much as the property itself, Mr Paliwal said.

“Selecting tenants is important for investment success. You want to select a tenant with a good track record in business and with growth potential. A nice and stable tenant could make sure of your cashflow and minimise your vacancy risks,” he said.