Commercial property buying top tip: You must have control over the asset

Commercial property buying top tip: You must have control over the asset

Nilesh Patel is a Director at the Prideview Group, a respected authority on commercial property investment services in the UK since 1985. They have been the premier choice for clients seeking expertise on the acquisition, management and sale of quality commercial property throughout the UK. Their services range from finance, insurance and management to foreign investor services.

iGlobal caught up with one of the Principals of the UK- based family business to know more about the commercial property sector and pick up key learnings on the various ways of acquiring property for the iMoney Show at iGlobal Radio.

Here are some highlights from the discussion:

Q

What is the spectrum of acquisitions and the amount people are spending?

A

The problem at the moment is, unfortunately, people don’t have lot of money to invest. I’m always very clear with my clients: don’t go at this game looking to double your money. You have to start at a level where you can ideally buy your own property. Anything from £100,000 and upwards: You can start looking at a commercial shop, it could be in the north of England, Wales, in a small market town. You can get access to small commercial units where you have a steady rental income, and it grows from there.

What a lot of investors do is that they will pull together with other friends. They form joint ventures, small consortiums, absolutely not a problem. If you work with family members, that can be a great way to pull your resources. People form a limited company, takes shares in it and that limited company can buy property and get finance. It’s a great way to buy.

Where we draw the line is working on larger fund type structures where people will invest £5,000 to £15,000 with one person and then they would pull that money in an asset where the actual investor has no idea what’s being bought. There is no control of it. We are all about control. For us, our experience has always been, you must have control over the asset you buy, ability to make the decisions about the tenants, about selling it, about managing it. If you outsource all of that control and don’t have the final say, you can find yourself in a lot of trouble.

Q

What is your advice on arranging finance or a commercial property loan with attractive interest rates?

A

In the financial crisis of 2009 and 2010, a lot of banks pulled back from the property market. The days of getting 80 per cent or 90 per cent LTVs [loan to value] are all behind us now. In the last decade, we have been living in a very low interest rate environment. We always encourage investors if it’s possible to get finance, go for it.

If you are a cash buyer, you have got a chance to get a deal done quickly and at a better price. But that does not mean you cannot refinance your property investment later. If you need finance from day one, you need to work with someone that can buy you that time to get your purchase done. In terms of interest rates on a quality 10-year lease investment to a tenant, you can hope to get around 3 per cent to 4 per cent which when you buy a property that’s 5-6 per cent, meaning you will get a slightly better return on your equity. So, getting finance is part of the puzzle.

It is very important, but it’s very clear that finance in commercial property investment doesn’t come from your usual banks. There are a lot of small lenders, building societies, lenders that you may not have heard of that are very good in this game and can work with you on a long-term basis. The way to access these is through a broker. We work with good ones that have been doing property finance for 20 to 30 years alongside Prideview.

*Listen to this podcast for the iMoney Show here; and catch Nilesh at the Great Big Indian Money Show by registering here.

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