Investing in commercial property?

[fasimew]

I've been looking at investing in a commercial property. Some of the rental returns on properties at the bottom end of the market (up to 100k) can be 15% pa. What's the caveat?

[Tom4398cc]

The text book says property is relatively illiquid compared to other assets / investments, and would particularly flag purchase and disposal costs.

Experience says if you are shopping at £100k and 15% yields with a single asset, you are entirely dependent on the success and sustainability of the tenant(s). You could be unlucky with bad debts, damage to the property, lack of maintenance, tenants voiding the building insurance or significant void periods (and business rates) between tenants. I don’t know enough to know whether it would be possible or difficult to borrow against an asset of this lot size. Might not be a consideration for you, but could limit the market at sale time.

Also check out the MEES regulations - I’m not sure if they have been abandoned or delayed by government. But if they haven’t - they could impact the ability to let the property, and thus its value/saleability.

It also depends what you think will happen with yields for the type of thing that you are looking at. If they come in to say 10% in the next period of economic growth, you’ll have decent capital appreciation. Ahem, if you can sell it. Or, if they go further out……..perhaps best not to think about that lesson in high yields.

[macron]

Tom4398cc said:

Experience says if you are shopping at £100k and 15% yields with a single asset, you are entirely dependent on the success and sustainability of the tenant(s). You could be unlucky with bad debts, damage to the property, lack of maintenance, tenants voiding the building insurance or significant void periods (and business rates) between tenants. I don’t know enough to know whether it would be possible or difficult to borrow against an asset of this lot size. Might not be a consideration for you, but could limit the market at sale time.

^ This.

Look how many are empty.

You ain't getting blue chip in tiny or awkward retail that can't be switched to res without undue burden. You'll have chancers and dreamer tenants with zero backing who will want rent free periods in return for spending £30 on paint and chipboard.

You'll have a lot of sellers who have run their mom and pop businesses forever and believe their bricks are worth a fortune and people will want the business too.

I am actively trying to buy to re-home two businesses in this cheap space, it's horrid.

[Portia5]

fasimew said:

I've been looking at investing in a commercial property. Some of the rental returns on properties at the bottom end of the market (up to 100k) can be 15% pa. What's the caveat?

I buy these. Where I buy £100k can get you something pretty decent. It greatly helps if you already have an idea of what you're going to do with it and what kind of tenant you're hoping to attract.

I find it helpful to keep matters as simple and straightforward as possible with tenants.

But, like residential, it hugely helps if you know what you're doing. If you don't, you can always use management who do.