Whilst political upheaval leaves much to be desired in other markets, commercial property continues to be a popular investment choice. But in order to get the most for your money, you need to be aware of a property’s true potential yield. Unfortunately, many investors are being caught out by unexpected costs – don’t fall into the same trap.
As the likes of Brexit continue to unfold in the background, many markets are being subjected to greater uncertainty and risk. As such, it’s become more important than ever to ensure a property is on track to make a great return on investment. Checking a property’s yield should, therefore, be a priority – but for many, it’s a task with more than a few pitfalls, unexpected surprises, and shocks.
No Bang for Your Buck
Before investing in anything, you always check what the return will be, and in the case of a commercial property, you’ll be checking its potential yield. The first step in this process is to understand what the yield is – and how to work it out.
There are a few different types of yield, and on the surface, there’s only some simple maths to get your head around. For the gross yield, for example, you’re looking at income/property value = yield. A property that costs £1million and generates £100,000 income will have a yield of 10%. Not too bad, right?
But dig deeper than the simple formulas and quick mathematics, and you’ll find that there’s actually much more to think about – and this is where individuals looking to invest in commercial property fall short.
If additional costs attributed to the property aren’t identified and accounted for early on, we could see our example income actually dropping to the £70,000 mark, with the yield also falling to 7% – all of which is a nasty surprise for the investor, who didn’t see this coming.
Look Ahead to Get Ahead
There is, however, a way around this. Carlton Park offers our clients a forensic checking service, in which our team will survey a property, identify additional operational costs and report back. This means investments can be much more informed decisions, with some choosing not to go ahead or to negotiate for a lower price in order to balance out the hidden costs.
You might be wondering why it’s important to do this. Simply put, a commercial property investment is only as good as the return it yields: the lower the yield, the less valuable the investment. Factor in the additional hassle and stress of re-evaluating a property investment once the real yield starts to show, and it makes sense to gather all the facts before putting any money down.
If you’re currently considering investing in a commercial property, we’d like to help you to navigate this complicated area by offering our forensic checking service. You’ll be given a full brief on unexpected costs involved by our expert team, allowing you to invest with confidence.
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