The term 'commercial property' may conjure up images of office buildings, retail spaces and warehouses. This is true. It is, however, also purpose-built student accommodation, long-term care homes for the elderly, hotels and short-term lets.
Commercial property works to a different set of rules from residential property. For the most part, small-scale investors buy a stake in a commercial property and leave a third-party company to manage it.
The investor simply receives the income for as long as they hold the investment. Commercial properties are generally sold back to the management company when the investor wishes to exit the investment.
The exception to this rule of thumb is short-term lettings. Investors generally buy these in their entirety. They can either run the property themselves or arrange for someone else to do it for them.
Residential property includes both properties let to a single tenant (or sharers who rent as a couple/group) and houses in multiple occupation.
In principle, it could also mean buying a home which was big enough to house yourself and your family and still have rooms to let out. It is, however, debatable how many property investors would wish to pursue this option.
If you’re interested in residential property, then you need to think carefully about what demographic you want to target. For example, young professionals are likely to have different preferences to retirees or people on low incomes.
Investigate suitable locations
Your chosen niche will determine your location options. For example, if you’re interested in student property, then you’ll need to look at student towns and cities. In most cases, however, you will have a choice of locations. This means that you’ll need to think about your priorities.
For example, mature markets may be safe options. This safety will, however, generally be reflected in property prices. Property may still be a good deal. Manchester and Birmingham, for example, are both mature markets and yet property prices are still very reasonable.
In some cases, however, prices are so high that yields become very weak. What’s more, there may be minimal capital growth.
Think about current and future trends
Student property and the young professional market have long been staples of property investment. The UK’s population is, however, ageing, so now might be the time to think of accessible property for downsizing retirees and long-term care homes.
Similarly, short-term city lets have been hugely popular over recent years. Now, however, they are becoming very controversial. Some local authorities are taking steps to clamp down on them. Now, therefore, might be a good time to take another look at city-centre hotels.
*Mark Burns is the managing director of property investment firm Pure Investor