I received a great question last week: “Commercial property would be interesting however is the price difference between residential and commercial not a barrier to entry for the smaller investor, or are there syndicate type investments available?”
This is a great question and it exposes a common misconception. Commercial properties don’t have to be big heavy hitting deals!
Affordability is all very relative to personal circumstances but many office and warehouse commercial deals I have come across have been at prices comparable to a three bed house or less. The smallest office lot size we bought was for £70K, very affordable for those with experience in the residential market.
I even remember in the early days finding a small shop that was on the market for £19K and I managed to negotiate the price down to £17K. It was vacant as the last tenant had just moved out. With a little TLC I knew it was going to rent out for about £250-£280 per month but then I was told that I wouldn’t get finance on such a small lot size! So we moved on. I now know to take advice like that with a pinch of salt.
a major factor in valuations is the net income. If you can make that significantly stronger then you will influence the value.
The upside of starting “small”.
One of the exciting things about Commerical Property is how much you can lift the value of an investment. It is quite possible to buy a commercial property for as little as £150K and increase its value to say £500K or more. I have seen this done a few times. Remember a major factor in valuations is the net income. If you can make that significantly stronger then you will influence the value. It is difficult to make such a difference to residential properties without radical and expensive remodelling.
Raising funding can be different to Residential, but starting small and building up a track record can lead to bigger and bigger deals.
There are often larger buildings that just can’t sell and you can get for significantly below the new build cost. You just have to see how to “fix” them.
Today I learned that a city centre building which we have been tracking for about a year will be listed with an auctioneer as the owner can’t secure a purchaser at the price hoped for. The building is over 15,000ft2. I am sure it does sell it will go for less than £25 per square foot.
Being in the swim will always improve your education and bring up opportunities.
Sure, there are large multimillion pound projects out there but it is amazing how low the price some larger commercial buildings will go for.
The other thing about looking at some of the larger deals is if you can’t or don’t want to do them, it is always possible to package the deal and sell it on. Playing the Cashflow 101 Board game from Robert Kiyosaki has taught me this. If there is money on the table and you need some to get going then keep turning over the bigger deal cards.
Being in the swim will always improve your education and bring up opportunities. The important thing here is to be doing something!
Joint ventures or “syndicates”
As indicated in the original question joint ventures are a possibility. If you are unsure or have a bigger deal then finding joint partners can be a good route to jumpstart your commercial property journey. If you can find a good property, someone else can help with finance and a third party could be the individual who will bring on site development experience, then you could form the perfect partnership to exploit the opportunity you have uncovered. You don’t need to be an expert at everything.
And, finally in the spirit of joint ventures, look for our Facebook group “Commercial Property Investors”, where you can find others sharing experiences and perhaps even some deals that they may need help with.