5 Commercial Property Myths Debunked
Many investors steer away from commercial property investing only because they think it is too complicated. It is surely not the case especially now that information that can guide you in your investment decision is ever more accessible. In fact, with careful research and analysis, commercial property investing can be a diverse addition to your wealth-generating portfolio.
Here are some common misconceptions that put off investors from investing in commercial property and how they can be overcome—
- I need lots of cash: Some non-residential property such as industrial assets can be expensive, but that’s not the case for all non-residential investments. Like any investment, it’s not about how much you put in but the quality of the asset you buy that determines success. Property that includes small factories, offices or serviced apartments that are strategically located- are generally considered good investments as they are high in demand. Proximity to business centres, transportation and access to roads are qualities that add to the asset’s value. Even the most seasoned investor sometimes invest small at first to ‘test the water’ and on the sign of good returns, increase their investment by putting more money or by using the principle of compound interest.
- It is too high risk: There’s an element of risk with almost all investments and just like other investments you can minimise and manage your risk by undertaking due diligence. Through research, you can identify companies which undertake risk assessments at critical decision points during the investment process to manage risks and target returns. As your knowledge and wisdom build, it will become easier to spot a ‘waterhole’ of opportunity in commercial property that suits your risk tolerance.
- It is only for people with financial expertise: Whether residential or non-residential, all types of property investments require a degree of understanding but you don’t have to be an expert to enter these fields. Some of the property tycoons known today entered the investment with no prior involvement with any commercial property. There is an advantage in being knowledgeable and well informed though another key to success is one’s willingness to seek independent counsel when needed. It is reasonable to spend a few hundred dollars on professional advice especially if you are investing hundreds of thousands. Your knowledge and clear goals, together with the expert’s guidance will help you minimise your risk and choose a property that truly fits your investment objectives.
- Commercial property development is too complex: This also falls down to knowledge requirement. Any complex system is easier to understand if you break it down to parts. Developers and investors run through a checklist to assess how viable a development project is. Top on the list is knowing that the fundamental driver for commercial property investment is there- it’s demand! As property development entities emerge to answer the growing demand for accommodation (due to booming Tourism and expanding Business Districts), the competition to attract investors also brings up the standard and quality of feasibility study and planning put together to minimise risk.
For developers, the critical point before buying any non-residential property or development site is its local infrastructure –whether access roads, public transport, shopping and associated facilities are sufficient to support the proposed development.
For investors, the crucial components of a development project that need in-depth assessments are financing requirements (unique with every project), property management options, background check for the project management team and associates, leasing arrangements and developer’s ability to identify and manage risks. Getting a transparent information on these details is a good indication of a sound management.
- It’s harder and more expensive to manage a commercial property: If you choose to manage the property yourself, then you may well run into some costly problems. But that’s the very reason why you would engage a competent managing agent. The plus side of investing in commercial property is also that they incur lower management fees than residential property.
Other investors that have the resources but not the skills, who would like to expand their investment portfolio look into Fund Management. Through Fund Managers, they can tap into a wide range of investments and get professional assistance in choosing where best to place their fund without getting overwhelmed with the amount of paperwork and brokerage fees. To know more about the roles of Fund Managers, click here.