Are you thinking about investing in commercial property for the first time? Do you have some money that you are looking to invest and want to know more about what is involved in investing in a commercial unit?
Here at Boxpod, we help to match up commercial unit landlords and businesses looking for a new (or first) place to home themselves. This gives us useful insights into what both commercial unit landlords want, as well as businesses that are looking for premises.
The commercial property market significantly contributes to the county’s economy, not only in the tax money that it generates but also in helping to provide the best conditions for a business’s commercial unit, enabling the business to push towards better productivity and attracting some of the world’s best workers.
Investing in commercial property can be a great investment for a number of reasons, and one of the most secure investments that you can make. In this article, we are going to discuss some of the main considerations for investing in a commercial unit.
Financial
The main reasons why most people look to invest in commercial units are financial. Although there are some businesses that buy their own commercial unit to use themselves, the majority buy one (or more) to rent out to other businesses – and here at Boxpod we help to facilitate that!
Compared to many other business investment opportunities (and despite a somewhat changing market) commercial unit investment is a relatively stable way to invest money, although not without important responsibilities.
Rental Income
One of the main incomes that you will get from your commercial property investment, is the income that you make from your tenants. This will vary according to a number of different factors, including the unit’s location, the type of commercial property that it is (warehouse, office, workshop, or retail unit, for example), and the conditions of the market and economy in general.
The instability comes, however, in not being certain that you will be able to get tenants straight away and finding a replacement when that lease ends. The time that the unit is left empty will mean that you are not getting that regular income.
Generally speaking, in the UK, commercial units give a rental yield of 6% – 12% (compared to a domestic house rental yield of about 3% – 5%).
Appreciation
The other main way that you can make money on a commercial unit investment is through appreciation – the concept of the value of the property when it is sold being higher than when you bought it. Generally speaking, it is unusual for property prices not to rise, meaning that commercial unit owners will, most of the time, get at least their money back from the initial investment, especially if it is well-maintained and situated in a good location.
When it comes to selling any property, it is all about location!
Tax Benefits
The world of tax and tax benefits can be a mysterious one for the best of us, so it is important to check with a tax advisor before making any decisions about commercial unit investments based on tax, but generally, there is the potential for tax savings for commercial unit landlords.
Expenses such as depreciation, energy-saving measures, and repair and maintenance costs, and interest on your mortgage can often be tax-deductible.
Lease Terms
Another attractive element for commercial unit investors is that commercial leases are generally longer-term than a domestic or residential lease. Business tenants are often looking to secure their base for a longer amount of time, leading to more stability for both the tenant and the landlord, and a basis for more accurate long-term financial planning. Many commercial lease terms can be for as long as 10 years – and sometimes even longer.
We have been seeing, however, a greater demand in the commercial unit market for flexible leases. This would involve the landlord being more flexible in terms of the length of the lease – potentially giving commercial tenants to ability to negotiate on their lease length, as well as what the use of the unit is.
Flexible leases are especially useful to small businesses and start-ups that are hoping to grow quickly, so if this is the market that you would be aiming for, it is definitely something that you should consider if you do not want to lose out.
Diversifying
For many businesses or individuals with a number of investments, another benefit of investing in commercial property is diversification. By adding commercial unit(s) to your portfolio, you can spread the risk and potentially benefit from a market that is generally well-protected and successful in terms of investment.
Finance Options
Many people who own commercial units can benefit from better finance options and choices such as mortgages and other loans. It is often the case that mortgage or loan rates can be lower, due to the higher stability that usually comes along with commercial units (compared to less stable residential properties). Many people also report getting better access to loans, along with better conditions attached to the loan.
Other Benefits of Investing in a Commercial Unit
As we have seen above, there are several financial benefits to investing in a commercial unit (especially if it is going to be rented out to a business tenant), but there are also other benefits.
In many rented commercial units, it is the tenants who are responsible for the building’s maintenance and repairs, taxes, and insurance. In addition to this responsibility being taken away from the landlord, it also makes it more likely that the unit is kept well-maintained and in good condition.
By renting out a commercial unit to small businesses in the community, you can help contribute to and enrich the community as well as build relations with local businesses.
Final Thoughts
Investing in a commercial unit can bring many benefits to you – financial, as well as other benefits. However, it is vital that if you are seriously considering this sort of investment, you are also aware of the potential risks, including the tax implications for you.
Here at Boxpod, our job is to help commercial unit landlords find business tenants, and of course, businesses to find their commercial homes. So, if this is you, why not take a look at our website and see if we can help?