Max Mendelssohn, a

partner with surveyors

DM Hall, picks his

way through the pitfalls and opportunities of the commercial

property market

There are an endless number of investment vehicles in which you can place your money. Why, then, consider investing in property, which is by no means the easiest way to find a good home for your funds?

If you look at the downside first, investment in property has some serious disadvantages. No matter how good the property, it isn't easy to turn it back into cash.

You have to pay surveyors to sell the premises, lawyers to carry out the conveyancing, and you'll probably have to pay for some advertising.

You may also want to sell when the market is poor. Unlike stocks and shares, you can't get some of your money by selling part of the property. Almost certainly you would have to sell it in its entirety.

It's expensive to manage property properly. You have to make sure your building is fully insured, you have to negotiate rent reviews, and you must ensure your tenant complies with the provisions of the lease or face the possibility that you could be left with a devalued property. If the tenant moves out it will cost you money to find a new one. If you're left without a tenant for some time and the property isn't listed either as historic or industrial, you will have to pay vacant rates or, if the property is residential, council tax.

These problems can be mitigated by putting the property out to a good manager, and there are plenty of them around, but again this costs money. Typical charges are around 3% to 5% of the rent each year to provide a full management service.

Now let's look at why people invest in property - and make a lot of money in the process. Crucially, you want to buy the right property. This is an area in which most surveyors will work on your behalf on a success-related basis, so you pay them only when you actually acquire your investment. The usual charge is around 1% of the purchase price, and for that fee you will get a valuation report and probably an introduction to the right type of property.

It's generally recognised in the market place that it costs an investor around 3.75 per cent of the purchase price to pay his surveyor, solicitor, stamp duty and various bits and pieces.

When you look at sales particulars of investment property, they usually quote a return after these costs have been subtracted. In other words, they may advertise a property which shows an 8% return on the purchase price after the 3.75% costs have been taken into account.

The fundamentals you want to get right - and which your surveyor should help you with - are location, quality of property and quality of tenant. The location is half the battle. If the property is in the right position, the value is more likely to increase over the years.

If the property is in good condition, you're not left with huge bills if something goes wrong. And if the tenant is of the right quality, he or she is unlikely to disappear and you will have some security of rental.The ideal property investment is one where the landlord pays for nothing and just sits back and collects his rent.

One of the great adantages in property investment is that, while shares can disappear overnight if a company goes bankrupt, you will always have something to sell if you own a property investment.

Generally speaking, property will compensate you for the extra difficulties you face by giving you a higher return than any other kind of investment.

There are plenty of good investments around which show returns of 8% to 10%.

The other great advantage of property is that you can borrow money to buy it. You may have to put down some of your own money, normally around 30%, but at least you can use someone else's money to invest and hope that the property will pay off the loan over the period of the lease to the sitting tenant.

If the property market increases in value you will get the benefit at rent review time, when the rent will go up in line with values in the area.

All things being equal, as the rent goes up your capital value will rise too. As more people want to put money into property, values will be forced up. The reverse can also, of course, be true.

One of the fun factors in property is that you can get a windfall profit when you suddenly find a major developer wants to buy your property to incorporate it into a shopping centre. Or the shop next door decides to expand and offers you a large sum of money to allow them to do so.

When the shop you purchased falls vacant, you may be able to get planning permission to turn it into a restaurant and receive a windfall profit from the change in planning. The shrewd property investor will often be able to spot these potential windfall profits before he or she buys the property in the first place.

If you're greedy and want a 12% or 13% return, you are going to have to look at risky situations. But if you're prepared to accept a 7% to 8% return, you should be able to obtain a perfectly safe investment which may not be liquid in comparison to stocks and shares but can be a good, safe home for your money.