With so many property investors beginning to look beyond the realm of your average Buy to Let’s and the anti-Landlord tax laws they withhold, we take a dive into the prosperous and endearing world of Commercial Property.
What do we want to find out? Well, whether firstly it’s a good investment, what the returns look like, and how to go about funding such a project.
But firstly, why are more and more Property Investors steering clear of the infamous Buy to Let Strategy?
Suffice to say the reasons to NOT enter into the BTL strategy have begun to grow and grow through the years.
As property prices have been increasing, yields have been reducing, and now the average rental yield is just 3.53%.
In addition, tax rules have become less favourable for those who own property in their own name rather than through a limited company.
To learn more about Limited Companies click here
And with the extended stamp duty serge whilst beneficial, means squeezed returns are available. Don’t even get us into the Eviction bans that still remain to this day…
The harmonise relationship that should be between Landlord and Tenant has begun to stretch to breaking point over the years, but there are solutions and strategies that prove beneficial to both renter and owner (the way it should always be)
How does commercial property investment work?
For those familiar with BTL investment, the concept will be simple. A property is purchased and then let out in return for a rental income.
Commercial property holds a diverse range of property types including:
- Office space and retail establishments
- High street shops to large out-of-town complexes
- Industrial units’ / warehouses
- Leisure establishments
- Even Car parking
To learn more about what type of commercial properties are available click here
What are the pros?
- The returns available when investing in commercial property are undoubtedly higher than those on buy-to-let property ✅
- Retail properties average a yield of 5.7% a £200,000 investment in a retail property would produce £11,400 on average, compared with just £7,062 from a residential BTL ✅
- The leases are longer than BTL (average on 7-15 years) ✅
- The stamp duty is cheaper ✅
- Huge tax breaks ✅
- Leveraging of pensions and investments trusts is available when it comes to funding the project ✅
- Finally, many leases are fully repairing and insuring, meaning the tenant is fully liable for the repairs and insurance of the property ✅
- These leases remove a lot of the cost of maintaining the property and a lot of the effort involved ✅
- This can be a big benefit as residential ASTs require repairs, maintenance and buildings insurance to be handled by the landlord, at their expense ✅
- A big-time saver. As Tenant issues and demands on maintenance don’t apply, the managing of the unit is far less than that of a BTL ✅
To learn more about leases, Tax Breaks and AST’s click here
What are the drawbacks?
- The commercial property market is less liquid than the residential market ❌
- This often means it can be harder to find a tenant when your property falls vacant. As such, it may mean longer void periods for the landlord ❌
- During these void periods, business rates must still be paid, with the responsibility falling on the landlord ❌
- Finally, commercial property tends to require a larger upfront investment than BTL’s ❌
Do your due diligence and delve deeper. Not everything can be taught via a blog or a Facebook post, which is why we think this 4-part video series on Commercial Property by experienced Property Investor Paul Smith is the perfect go to when wanting to look into your options within the wonderful world of Commercial.