Buying Commercial Property

[supercommuter]

Hi - Looking for some guidance on purchasing commercial property. An opportunity has arisen to purchase some commercial property that is currently on a 10 year lease to a business with a fairly healthy income. Having only ever worked with residential property I am struggling to find any details of the general LTV rate for mortgages.

Everything i find is for businesses looking to purchase their property to work in. Is anybody able to advise on this? Is it the same as BTL residential property where you need a 40 percent deposit etc.

Thanks!

[supercommuter]

Ozzie Osmond said:

supercommuter said:

An opportunity has arisen to purchase some commercial property that is currently on a 10 year lease to a business with a fairly healthy income.

Residential - one tenant moves out, millions more are looking for somewhere to live.
The state of the economy doesn't really affect the number of people looking for a home.
It doesn't matter if one residential tenant is a car mechanic and the next is an accountant.
Security of tenure is rare these days.

Commercial - one tenant moves out, where's the next one coming from?
The state of the economy has a huge impact on the number of businesses looking for premises.
If a car mechanic goes bust you'll never re-let the garage (or whatever) to a firm of accountants.
Does the business tenant have security of tenure? Do you care?

Some very good points! The biggest concern for me is the tenant if they were to leave, as you have said - filling residential property is much easier!

It is a warehouse style property with roller front doors with multiple car ramps etc that has been trading for some time. The business is well known. They have a 10 year repairing and insuring lease on it.

The nervousness around finding new tenants is what bugs me most....

As suggested previously i will call a high street lender and see what the mortgage options are.
Thanks both for your responses.

[supercommuter]

Jockman said:

Another difference I found with commercial property is the valuation. Many are unique so it's a guess.

If you find one, offer half the asking price.

This one is up for £340k

It has been up for a while. £170k might be a bit cheeky!

[supercommuter]

Vocal Minority said:

What's the income OP?

Interesting that its been around a bit if the income is solid, whats the location like?

Edited by Vocal Minority on Friday 19th August 15:29

£20k income so the yield at asking price is only about 5.8%

I was hoping to pay a lot under asking price to bring the yield up to around 7.8%

Area is a busy trading area. It is not isolated in any way.

ETA: I say it has been up for a while - by that I mean about a month. I am not in the position to say things like that i guess - as i don't know how long this type of property stays on the market for!

[supercommuter]

Vocal Minority said:

Wow - 5.8% is pretty strong! I assume it is a relatively modern unit in the south east from that description?

And 1 month is pretty fresh on the market.

They key to it is, if you want 7.5% - 8% so in the ball park of 240,000 - 250,000 or something like that - then put in an offer.

At the end of the day, you bid what it is worth to you - because always remember, you aren't buying a building, you are buying an income.

If 5.8% is rich for your blood, then don't offer it, find something else to invest in.

It's really easy to get suckered into a competition to 'win' and compromise on your ultimate objective

Let's put it this way: do you want that particular building, or do you want 7-8% on your investment.

If it's the former, consider stretching yourself. If you want the latter - offer that, and if someone else offers more - 'she aint wurf it bruv'

It's surprisingly easy to want the latter, but get drawn into a competition for the former the objective you actually isn't that interested in.

Sound advice. I am chasing the yield not the building. It was a potential step into commercial property. I am unsure to be honest. It is a lot to have tied up in one business building. Although there is potential to turn it into smaller units in the future and increase yield further. There is also yard land as well....the more i say it, maybe i am chasing the building.

I am going to sit and have a think. Thanks for all the advice!

ETA: Modern in South West. The rent is a little low if you ask me.

[supercommuter]

Jockman said:

Do you have any funds i your pension that could buy it?

How long is left on the lease?

Sadly not, I am only in my mid 20's so I have not been paying in long enough! I could probably buy a mid sized rep mobile with my pension pot

drainbrain said:

Spotted this in your approximate area and on the assumption that you prefer owning in your area. Nice sounding figures.

http://www.rightmove.co.uk/commercial-property-for...

I had only been looking in my local area. That is not too far away and has a much more attractive yield! I might extend my looking into Wales.

Vocal Minority said:

supercommuter said:

Sound advice. I am chasing the yield not the building. It was a potential step into commercial property. I am unsure to be honest. It is a lot to have tied up in one business building. Although there is potential to turn it into smaller units in the future and increase yield further. There is also yard land as well....the more i say it, maybe i am chasing the building.

I am going to sit and have a think. Thanks for all the advice!

ETA: Modern in South West. The rent is a little low if you ask me.

Well best of luck with whatever you decide old chap - if you do see the potential in it, there's no harm doing sums. Just remember to price everything up and remember to pitch your return against every item of expenditure. Do it at todays values and assume growth at your peril!

Property law, especially with regards to lease renewal, is considerably more nuanced than you may get with a resi investment. And the holding costs if vacant can really spiral. Professional advice really is your friend on these issues.

However, so long as you make sure you cover all of the angles and plan well property is a relatively stable and productive investment. Reasonable return without the rapid volatility in capital values of stocks and shares. Though obviously less liquid and far from immune to market forces (but that goes for anything really)

If it's your first time, honestly, instruct a surveyor who knows the market well - it maybe the best couple of hundred quid you spend in the long run. Seriously.

Best of luck, and remember to base all decisions on what YOU want out of it.

Edited by Vocal Minority on Friday 19th August 17:06

Thanks. Having reviewed and reviewed again this one is not for me. I would be too stretched financially if this was to become vacant for an extended period of time, especially considering the yield, or potential yield. I am going to extend my search and keep looking!

I have the deposit funds sat in a number of diverse shares at the moment so I am not super rushed! I want to make sure I am fully clued up so I will take the advice from this thread.

Thanks