With the recent tax hikes on buy-to-let investments, landlords are looking at alternatives to residential property and are increasingly turning to the commercial sector instead. Shops, restaurants and offices are being seen as viable alternatives to residential property, before the new taxes on mortgaged buy-to-lets comes into force in April. Auction house Allsop has seen a lot of investors moving into commercial properties and commercial auction partner George Walker said it has seen three times as many buy-to-let investors put their money into commercial property since the tax changes were announced.
There are several advantages in commercial investments. The yields are higher, although price increases are less reliable and not as volatile as in residential property. Therefore, commercial investments are ideal for anyone interested in good yields rather than capital gains. Along with the benefits of healthy yields, costs can also be lower. Often tenants will also pay for insurance, repairs and the business rates themselves and they will sign up for longer leases, as they do not want to have to keep finding new premises every few months, especially if they are building up trade. The most popular investments are retail units, which could include shops, restaurants, cafes and gyms, as well as small offices.
When choosing commercial investments, make sure the business is in good shape by looking at their accounts, either from Companies House or the seller. Also, ask the seller about his or her relationship with the tenants. Wherever possible, visit the location to see how busy it is and how much competition is out there, particularly if it is a shop or restaurant. Look at the lease details and how much rent is paid. Ask a solicitor with experience in commercial property to look at the lease and handle the sale. A solicitor will also point out the legal differences between residential and commercial leases.
Make sure you have sufficient finances in place or a mortgage. It can be difficult to get a mortgage for commercial properties, with banks being less likely to offer interest-only mortgages. Some may only offer a mortgage for the length of the existing lease, which could make it tricky to repay the loan in that time-frame.
It is not just UK investors who are turning to commercial properties. Demand from overseas investors is also up, and enquiries becoming increasingly frequent. A report by the Royal Institution of Chartered Surveyors showed 21% more respondents saw demand rise in the final quarter of 2016, and 20% seeing a rise in enquiries from foreign investors.