Top Tips – Switching from Residential to Commercial Property Investment
As Buy to Let residential property becomes less attractive, many investors are considering turning to commercial property instead. There are many reasons why this can be a good idea. However, the residential and commercial property markets are very different. Here are our top tips for what you need to consider:
- There are more factors to consider when it comes to selecting the right property than with residential. Some of these won’t be immediately obvious to new commercial owners or letting agents not used to this specialist market. So expert commercial property advised will be required.
- Taxation, and VAT, in particular, is more complex. Unlike the residential market, owners can recover VAT on fees and costs for many commercial properties. Commercial managing will normally take care of VAT returns if required.
- Commercial properties can be expensive, but are often let to recognisable national and international businesses, giving good security over future income and confidence a property will be looked after.
- Lease terms are typically at least 5 years and void periods can be longer than you see in the residential market. Satisfying yourself that occupiers can pay the rent in the long term can be more involved than with residential lets.
- Growth of capital values is often more affected by economic and global changes. But with tactical purchases and prudent asset management significant capital gains can still be made.
- Yields from commercial investments are generally higher and costs such as maintenance and business rates and building’s insurance are normally borne by the occupier. There’s less need to worry about the funding of regular property repairs and refurbishment.
- With offices, there may be an opportunity to use Permitted Development Rights to convert properties to residential, without the need for planning permission.
- Commercial property management companies are generally run by qualified chartered surveyors and offer a more comprehensive service than a typical residential agent.
The commercial market has important differences. Having a specialist partner to help identify, acquire and manage your properties could make all the difference in achieving successful transition in your investment strategy. Fees generally represent a much lower percentage of the rent receivable.
Most important, commercial agents will make professional recommendations to help you make informed decisions. If you’re considering changing or diversifying your investment portfolio contact Hicks Baker today and start your new investment strategy off on the right foot.