6 Crucial Steps to Nail Before Investing in Commercial Property

Investing in commercial real estate can be an excellent path to long-term wealth creation and financial security. However, it's not a decision to be taken lightly. Proper planning and preparation are vital to ensure your commercial property investment is a success rather than a costly mistake.

This guide outlines 6 key steps to complete before taking the plunge into commercial property investing. Follow these and you'll approach your investment with confidence, having done your due diligence.

1. Get Your Personal Finances in Order

The first step is understanding your current financial position inside-out:

• Cash reserves - How much capital do you have to invest?
• Income - How much do you earn and how stable is your employment? 
• Cashflow - What are your income streams vs expenses/liabilities?
• Borrowing power - Speak to a broker about how much you could borrow.
• Credit rating - Check your credit report and score.
• Risk tolerance - How much volatility can you withstand financially?

2. Determine Your Purchase Budget

Based on your financial assessment, work out a realistic price range for your commercial property purchase. Lenders can indicate how much you could borrow based on your circumstances.

If using cash savings, divide this by 0.35 to estimate the maximum purchase price, allowing for a 30% deposit plus around 5% in acquisition costs.

Weigh up whether buying a cheaper property now or waiting to afford a higher-quality one makes more sense.

3. Active vs Passive Investor?

Decide if you want to be an active or passive investor:

- Passive investors want a hands-off investment requiring minimal time.

- Active investors want to be deeply involved in the search and adding value.

If you lack time to be an active investor, consider engaging a buyer's agent to do the legwork for you in finding and evaluating potential purchases.

4. Set Clear Goals

What are you aiming to achieve through commercial property investing? Your goals will depend on your life stage, risk tolerance, how aggressively you want to grow a portfolio, desired cash flow, timeframes and non-financial factors like lifestyle.

Write down your goals, be prepared to adjust them along the way, and celebrate milestones with rewards. A buyer's agent or financial planner can assist in setting meaningful goals.

5. Develop a Roadmap

With goals defined, develop a detailed investment plan outlining the steps and numbers required to achieve them. Consulting professional advice can ensure your plan is realistic and optimised.

6. Assemble Your Team

You can't go it alone in commercial property investing. Surround yourself with a team of qualified experts:

- Finance broker/banker

- Accountant 

- Buyer's agent

- Solicitor/conveyancer

- Property manager

- Town planner

- Valuer

- Mentor (paid or unpaid)

When assessing potential team members, consider:

- Their qualifications and competence 

- Whether you have rapport and trust

- Their communication skills and reliability

- Incentives and potential conflicts

The right support team, while requiring an investment, could prove invaluable.

The Bottom Line

Commercial property investing demands careful planning and preparation. Following these 6 essential steps will set you up for a smoother, lower-risk journey towards your investment goals.

For more detailed guidance, check out our best-selling commercial property investing book or get in touch with our team today.