Vital Tips On Investing in Commercial Real Estate

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With all the pressures felt by the property sector in a time when it is already in a lull period, it is of paramount importance that investors fully understand the real estate that they hold or plan to acquire.

From the US-China trade war to an oversupply of several property categories and a weakening economy, the situation was worsened by the arrival of the Covid-19 pandemic. 

But that is not to say that there are no longer any opportunities in real estate, said CBD corporate services head Victor Lim, adding that information is the key that can unlock the potential of real estate.

For investors looking at improving their income, he said they need to do their due diligence in gathering details of market comparison rental rates in the local area that apply to properties of similar type and age.

Investors need to look at the property type and customise them to suit what is in demand, said Lim.

Investors need to look at the property type and customise them to suit what is in demand, said Lim.

Information gathering is essential

“Survey the existing properties and new developments nearby. Get the required details of current sales and rents on offer,” he said, adding that landlords should take note of neighbouring properties coming up for sale or lease.

Investors can check for new property developments details or changes in property zoning from the local planning office.

“You will need to offer attractive leasing packages such as longer rent-free periods, improve or renovate your property, and keep the landscaping neat and trim,” he said.

Lim, who is also a registered real estate negotiator specialising in office market particularly in the prime areas of Klang Valley, pointed out that investors need to look at the property type and customise them to suit what is in demand.

“For example, consider furnishing up the bare spaces and amortised the cost into the rent, as the demand for fitted offices still remained strong,” he said.

Tenant movements

As retaining good tenants is essential in ensuring a constant flow of revenue, he pointed out that it is always better to proactively reach out to tenants before the lease is up for renewal.

“Seek professional help to market the property immediately after the tenant gives notice as this is to minimise the vacancy time and the flow of your income stream,” Lim said.

Changes to the tenant mix may help the landlords with net income results, especially when the property is of a retail nature.

“Research customer demographics that apply to the local population and the business community, and consider the potential trends and changes that will arise in the coming years,” he said.

Minimise expenses 

As property expenses and outgoings will impact the net income, landlords need to keep track of their costs.

“Review those outgoings. Compare the amount with the local market trends and that you are not spending more than the average when it comes to property operating costs,” Lim stressed.

Diversification in property portfolio ownership will spread the risk of income exposure and minimise the risk. Diversifying across different locations and having a right mix of different property types will ensure that the portfolio as a whole continues to grow in terms of investment and financial goals.

“By investing across a different price range, investors can increase the liquidity of their portfolio. For example, if you needed cash, you could dispose of one lower cost asset rather than if you were just holding one higher value property.

“Moreover, commercial or industrial properties can be a great source for tax benefits, a retirement strategy, or paying mortgages on your other investments. Another option is investing in real estate investment trusts (REITs) for those looking to spread their investment portfolio across different markets,” he said.

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New opportunities

Old dated buildings that have low occupancy can be repurposed for new alternative uses depending on the location, neighbourhood and surrounding developments. 

With the current drop in property prices, it is a good time to track down such properties that can be used to generate a profitable income.

For businesses which are facing financial difficulties, they should consider a sale and leaseback opportunities to free their cash flows, Lim said.

“Such a move would lower fixed costs, and release capital for re-investment into their core businesses,” Moreover, there is no moving cost as these businesses can continue to operate from the same premise after their sale, he said.

There will always be new opportunities, but the key is knowing where to look.

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