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It is also worth looking at the performance of past developments (ideally in the same sector) in order to ascertain whether they have a good track record.
5. What If I Need Access To My Money?
A flexible exit strategy is an absolutely crucial element in any commercial real estate investment. Although the sustained attractiveness of your investment property is a major element of this, the specific investment conditions you agree to also have a huge influence.
Long guaranteed income periods (with attractive yields) represent the best conditions to ensure a flexible exit strategy. They provide investors with the opportunity to leave at any stage during the investment cycle, while presenting buyers with attractive conditions on a fully operational and proven development. Healthy capital growth of up to 40% is also highly achievable, with initial high yields suggesting a below market value investment level – often the case with new builds especially. Such flexibility is not available with shorter guaranteed income periods, due to less attractive investment conditions being available at resale.
Another common investment condition is guaranteed buy-backs. Although these can still provide flexibility, they have to be heavily scrutinized before investing. Any guaranteed buy-back should be based on a tried
and tested business
model and not mere
projections.
6. Does It Fit With My Objectives?
Two key elements of security that some investors overlook is:
How well an investment suits their own objectives
What place it will take up within an existing portfolio.
What might be a great investment for one investor may not suit another. Also keep in mind that diversity is important, and commercial property offers a great opportunity to achieve this without investing a fortune.
7. What Are The Risks?
A key aspect of a successful investment is mitigating risk. In commercial property, this can be achieved by considering all of the above, while also ensuring that contracts are robust and asset-backed (it is common for developers to set up third-party shell companies through which they underwrite guarantees – this is highly insecure, as they commonly have zero assets).
It is always a good idea to consider the worst possible scenario. What impact will this have and what security is in place for you to protect you against it?
Final Advice
By asking the questions outlined above, you can go quite a way in ascertaining whether an investment is secure, profitable and right for you. However, the most important thing is to ask a professional consultant any question that comes into your head, regardless of how silly it may seem to you. One of the most crucial aspects of security in any investment is your own understanding and even if this takes 100 questions, so be it.
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Bendix Anderson / December 15, 2014
“The market has continued to surprise to the upside”