When it comes to investing in your future, there are few options that provide the kind of security that property does. It is real, tangible, unequivocal and universally understood. Whereas the complexity of the stock market and other alternative investments can put inexperienced investors off, it is the relative simplicity of property which attracts them.
During the financial downturn of the past 7 or 8 years, however, investors have become increasingly focused on sourcing enhanced security, whilst diversifying portfolios and hedging against the residential property sector.
Whilst the shifting financial environment has created a more cautious approach, it has also opened wider sectors up to individual investors with modest budgets. This has enabled investors to take advantage of robust niche sectors and huge supply gaps, whilst diversifying their portfolios and protecting themselves against any potential market malaise.
Commercial property covers a wide range of asset classes – from student halls to self-storage, car parks to apart-hotels. The key draw being the highly sought after balance between profit and protection. This performance is based on a variety of aspects and is backed up by guaranteed income periods, upwards only rental reviews, sustainable demand and economies of scale. One crucial and often overlooked factor, however, is property management, and it is this benefit that I shall be focusing on today.
Profit Without the Sacrifice
One fundamental aspect of profitability often overlooked during preparation is time. Time is money, as the old adage goes, and thus yields are only truly NET if this commitment is considered. It is quite straight forward really: A £1000 monthly income is attractive if it demands zero hours, but not so much if it demands your full attention.
Commercial property investments are distinct from traditional buy-to-lets in that they commonly come fully managed. That is to say that a professional property management company takes care of all key aspects of an investment – from sourcing tenants to collecting rents, cleaning carpets to repairing leaking taps. For anyone who has ever acted as a landlord, the impact this has on time commitment is clear.
The Impact of Management on Yields
Especially in niche sectors, such as student, this becomes a key cog in driving the investment’s ability to return high yields.
Investors benefit from economies of scale, which drives down the cost of property management, whilst also enhancing the quality of service: It is much more cost effective for a company to manage multiple units within one building, as opposed to several individual houses. Also, as the contract will be an important one for the management company, they are able to commit more time and energy towards it – regularly assigning full time staff. This ensures that the high standards of a property are maintained, enhancing sustainable demand and driving up occupancy.
Although property management is an option for traditional buy-to-lets, it is not a cost-effective one. Already yields are lower and the extra expenditure of a property management company is not one that can commonly be fulfilled. Rather, landlords take on all the responsibilities themselves, helping to maintain the tangible monetary value of their investment, but eating into the indirect cost of time.
Guaranteed Income Providing True NET Yields
Further on from this is the guaranteed income periods often forwarded by the developers of commercial properties. This presents investors with high yields, which although factoring in management, remove the worry, time and cost of unforeseen expenditure. Such periods range from as little as one year to more than a decade, and enable investors to take advantage of a completely hands-off and hassle-free income stream.
A further aspect to this is the advantageous impact it has on an investor’s wider financial management. By having concrete assurances over their rental income from a specific investment, they are able to manage other transactions with more conviction and security. With zero time commitment, investors also have the necessary freedom required to commit their energies elsewhere.
The objectives of property management companies are fully aligned with those of the investors, as it is common for their pay to influenced by income. Thus, investors can always be assured that management companies are working hard on their behalf to promote, manage and maintain their property.
Ease of Exit
All the above really focuses on the hassle-free nature throughout the course of the investment, but what about when you want to exit?
The guaranteed income periods also play a huge role in this. As such investment conditions are transferable, they enable investors to resell their properties with guarantees attached. As a property begins to make money, its value increases and a fully operational investment property with high guaranteed income yields is hugely attractive at resale.
Developers often sell units at below market value in order to finance construction or refurbishment and, therefore, the ability to sell with capital growth is also highly achievable. This is further enhanced by the fact that commercial property is able to deliver double digit yields, far greater than the returns seen in the vast majority of residential property.
Although, of course, thorough due diligence must be conducted on all aspects of a development – developer, sector, location, contracts etc, a good commercial property investment can provide investors with a completely hassle free income from purchase right through to exit.