How to manage risk in commercial property investment
Updated: Nov 19, 2020
Confidence is growing in commercial property as Australia rebuilds, but life is still uncertain. So how do investors keep one step ahead, in all circumstances?
We've learned that in a post pandemic world, there is no place for complacency - as South Australians experienced first hand, when the state rapidly went from being COVID free to a hard lockdown for a week.
There will always be some risks for investors, but there are strategies to keep them to a bare minimum and ensure you can still sleep soundly at night.
Here’s just a few of our tips.
Get clear on your strategy
What is your property investment strategy and your financial goals? Are you aiming for cash flow or capital gains?
If you have a long-term strategy, there’s no reason why you can’t take on more low-risk investments and build your wealth over time. However, if you need cashflow quickly, then you must understand the higher risks involved and how to best manage them. Your financial capacity will also help determine your level of risk tolerance.
Sure, putting all your eggs in one basket can see you reap massive rewards if the market goes your way, but what if they don’t?
This high-risk, high-reward scenario certainly isn’t for everyone, which is why the balanced commercial property portfolio that comes from diversification is often recommended. By investing in multiple sectors, and different types of commercial property, you’re effectively ‘spreading’ the risk and guaranteeing you don’t suffer complete losses in a market upset.
In every event and financial crisis, some sectors flourish while others feel the pain. For COVID-19, while office spaces and retail took a hit, distribution centres, convenience outlets and industrial properties boomed. So, having a mix of properties means you stay safe and consistently have wealth building opportunities.
Play the long game
There will always be peaks and troughs in commercial property, which is why you need to adopt a long-term mindset. Reacting to a short-term situation and losing sight of your future plans can see you make huge mistakes that take years to recover from.
To avoid being influenced by your emotions, try setting yourself rules which guide you through the decision-making process in any situation, and especially those that are under time pressure.
But even if something doesn’t go your way, use the pitfall as an opportunity to learn from the experience and better prepare yourself for next time. These lessons act as a great way to identify decisions and strategies that work or don’t work.
Manage your relationships
Finding the right tenants and maintaining an amicable, respectable relationship is critical to minimising your risks with rental payments, lease terms, and property maintenance.
When it comes time for major negotiations and changes, such as rent relief during COVID-19, you (and your tenant) can confidentially enter the conversation with an open mind and the willingness to find a mutually beneficial solution.
But there are plenty of relationships in commercial property other than your tenants. You will need an expert and independent property adviser, accountant, finance broker, lawyer, property valuer and property management team. Building long-term relationships with these professionals ensures they have adequate background knowledge and can make better decisions based on your individual needs.
Keep on top of documentation
Store all of your records and documentation, and make sure everything is accurate and up to date. Set up systems and reminders to ensure you’re on top of upcoming and important dates.
Be an active commercial property investor and stay on top of the latest data, trends and research. Always know where your investment is at and what might be coming in the near future so you can prepare accordingly.
Make sure you gather your information through reliable sources such as independent reports, industry analysis and advice from an expert property adviser. Don’t rely on media commentary, social media or advice from family and friends. Remember, every decision should be backed up by your research.
Get expert support
The measures to minimising your risks at times can seem daunting and leave you lying awake at night worrying about your investments. So, team up with a leading commercial property adviser from Broadway Property who can equip you with the best measures and strategies for success.
Contact us to discuss your needs. No obligations.
Managing Director, Broadway Property
Director, Broadway Property