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Property :
The right time
to invest ?

October 2011
South West Business
Are bricks and mortar now an attractive option for the investor ? Inflation is
looking set to increase, but is more the ‘cost push’ variety than ‘demand pull’,
meaning there should be little reason for the MPC to increase interest rates in
the foreseeable future – this type of inflation is not being fuelled by runaway
consumer spending, more increases in energy and raw material costs.

Investors need their money to grow in real terms and with commercial
property yields generally between 6% and 12% and with inflation around
5%, these returns look attractive. However, the principle of a high return
associated with high risk applies as much to property as it does to other
investments - here are some pointers when considering a purchase :

Property type – the property should stand on its own two feet, meaning, it
should be of an age, specification, condition and design which will appeal
to occupiers for the foreseeable future

Location – values are sensitive to location, particularly with retail. Also, if
there are access problems or the area is becoming blighted, the investor
should think carefully in terms of future lettabilty. An industrial building,
where streets are narrow and loading difficult, may be cause for concern;
tenants may prefer more modern Industrial Estates.

Tenant strength - Credit checks, due diligence and the scrutiny of accounts
should be undertaken – is there a good likelihood the tenant will still be in
business in 5 years time ?
Lease – most commercial leases are fully repairing and insuring
meaning the tenant bears the responsibility for most of the property
costs and the investor virtually receives a net income from the rental.
Leases can be complex and will need to be examined by a good
property lawyer. The length of lease is crucial. Does the tenant have
an option to break and is there a penalty ? Are there rent reviews
and how are they determined ? How are dilapidations resolved at
lease expiry ? All questions which can affect value.

Rental – the current level needs careful consideration. If below
market, the value of the investment can be increased at the next
review, equally, an ‘over rented’ property may not see an increase
for years.

Timing – Assessing the movement in property yields is key. These
can vary between property types and be influenced by the
performance of other investments. As demand increases, prices rise
and yields shift down and visa versa . The trick is to buy or sell
before or after the shift has occurred.

Commercial property investment requires careful consideration and
advice is essential, but with the right opportunity, the rewards can
be lucrative.

For any advice required please contact us

0845 602 6242

RED Partnership ©