As a business, there are many pressures on your financial resources. In order to grow, you need to make a profit. But you also need to invest in your business. Is property still a shrewd financial investment and is it something a business should consider?
For many, investing in property is seen as a prudent investment of your hard-earned profits. Investing in your own building it’s a great way to have your own world headquarters or even branch out and expand your service offerings. You can also leverage commercial property by renting to tenants.
Long Term Investment
Firstly, investing in a commercial property is a long-term investment. The days of making tens of thousands of dollars in quick cash within weeks or months of buying and selling a property are long gone, for the foreseeable future at any rate.
In other countries, the real estate market is quite buoyant. In New Zealand, the gap between supply and demand is such that in some locations, buyers are making amazing profits within days by selling at an inflated price to what they bought.
However, for those businesses thinking of buying their own commercial building there is a risk to investing in property, and the maintenance of a facility is something else to consider. Commercial real estate is not a ‘get rich quick scheme’.
How to Successfully Invest in Property
The following is a point-by-point guide to how your business can successfully invest in property but as always when it comes to making investments, you should always seek advice tailored to your own specific circumstances.
1. Financial Roadmap
Investing in property means having a firm grasp of your business finances, both now and in the future. This means drawing up a long range financial plan that sets out your business’s financial status and how you would expect this to change in the future.
It would also specify the level of investment, as well as a financial ‘buffer zone’ for maintaining property and so on. This is something a business should do for its own property, as well as for any it rents to tenants.
2. Evaluate the ‘Risk Comfort Zone’
Some people are more prepared to take a risk with their profits and income than others. Known as the ‘risk comfort zone’, you need to make sure your business income is stable enough to make an investment in a property. The important thing to understand is stretching in terms of investment and risk can lead your business down a dangerous path. Investments should protect your business and build it for the future, and not be the shifting sands that could topple your business.
3. Consider a Mix of Properties
Businesses with a successful property portfolio have a mix of properties. This may be both commercial and domestic properties. Once you are successful with your business location, it might make sense to invest in residential properties and court tenants and buyers are from different sectors. This spreads risk as well as spreading investments.
4. Rebalance your Portfolio from Time to Time
Don’t treat your long-term investment property like a set it and forget it business one you engage a management company to run it. Ignoring real estate for years could be to your detriment.Property investment specialists suggest that rebalancing a property portfolio is a great way of ensuring that you reap maximum rewards from your investments. This means watching the property markets, understanding the shifts in its and taking advantage of opportunities as they arise. From investing in commercial properties, to shifting the focus to different areas of the country, to gain the most from investing in property, you need to remain alert and switched on to what the market is telling you.
Many businesses invest in building their own commercial space, but there may also be a possibility to investing in creating your own ‘business park’. With start-ups to medium sized enterprises looking for modern, affordable office spaces and units, creating a unique space for other businesses to operate from could be a worthwhile risk and investment for your business to take.
As a business, there are many opportunities and threats to your business. Expanding your business takes capital and when banks and lenders are not as free with their credit facilities as they once were, you need to take a more out-of-the-box, creative view to create capital in the longer term.
Property can provide a healthy profit margin, but it must be a deliberate purchase. It is an investment that must be nurtured and planned out. Keep your finger on the pulse of the property and rental market, both domestic and commercial, to ensure that your portfolio remains as strong and profitable as it possibly can.
About the author
James Trotter is a Marketing Assistant at MTX Contracts, a specialist construction company. Providing bespoke building solutions to clients all over the UK and Europe, James has his finger on the pulse of the property markets.