Buying commercial property through SPV
Discussion
Hi, we're considering an investment to buy a small commercial property via a mortgage. It's setup as a small shop / artisan cafe with a couple of rooms above, so would be mixture of commercial and residential usage. It's about 2 hours away from us so we wouldn't be close by to deal with issues etc. Rough price £160k with about 25% deposit.
We're getting some advice on this now, but we're very new to anything commercial. We've been advised that an SPV would be a good way to go, based on myself being higher rate tax payer amongst other reasons.
Before going much further does anyone have much experience of this and guidance for the beginner? Thanks!
We're getting some advice on this now, but we're very new to anything commercial. We've been advised that an SPV would be a good way to go, based on myself being higher rate tax payer amongst other reasons.
Before going much further does anyone have much experience of this and guidance for the beginner? Thanks!
I have done this via an LLP but on significantly more expensive properties involving partners and bespoke funding, in your case I would have thought that the costs involved in setting up an SPV with associated financial reporting would outweigh any benefits.
If the 'we' in your situation is your wife and she is a lower rate tax payer then far simpler to buy it in joint names and split the income.
A basic knowledge of lease law would be useful but as you're not dealing with corporate tenants and their associated advisors it's really not too difficult, no reason why you can't manage it yourself and pay for advice as and when you need it..
If the 'we' in your situation is your wife and she is a lower rate tax payer then far simpler to buy it in joint names and split the income.
A basic knowledge of lease law would be useful but as you're not dealing with corporate tenants and their associated advisors it's really not too difficult, no reason why you can't manage it yourself and pay for advice as and when you need it..
Thanks Tresco. And yes, the 'we' is my wife and I. I would expect our main tenant to be a small business owner who wants to sell cakes / coffees / small cafe type place, and either live there themselves or we find someone else for the rooms upstairs. So what you're saying is that should be pretty simple to deal with as I interpreted 'corporate tenants' to mean a larger company with more complicated needs.
TallMark said:
Hi, we're considering an investment to buy a small commercial property via a mortgage.
Have you crunched the numbers and concluded that this will outperform other investment opportunities available?What's the interest rate available on the mortgage? Will it be secured only on the one property and with no personal guarantees?
"Borrowing to invest" is generally known as gearing. Would you borrow to invest in something that wasn't property? If not, why do it with property?
Don't forget that under Labour's new Renters Rights bill you could get stuck with a sitting tenant in part of the property which would significantly affect any exit strategy. They're also remarkably keen to increase taxes on landlords.
I hope your 2 x ISA's are already full to the brim and 2 x pensions well funded ahead of this new venture.
Beyonce Knowles offers useful guidance for such projects,
"Sweet dream or a beautiful nightmare
"Somebody pinch me"
It's not really commercial when you have 2 flats and a small shop.
It's more like 2 BTL flats and a low calibre short lease tenanted commercial premises.
There's potential for that to be a lot more work and risk than a single larger commercial property.
Location is 95%+ of the equation you need to consider before committing to that particular setup.
I wouldn't go there, personally.
YMMV.
It's more like 2 BTL flats and a low calibre short lease tenanted commercial premises.
There's potential for that to be a lot more work and risk than a single larger commercial property.
Location is 95%+ of the equation you need to consider before committing to that particular setup.
I wouldn't go there, personally.
YMMV.
OIC said:
It's not really commercial when you have 2 flats and a small shop.
It's more like 2 BTL flats and a low calibre short lease tenanted commercial premises.
There's potential for that to be a lot more work and risk than a single larger commercial property.
Location is 95%+ of the equation you need to consider before committing to that particular setup.
I wouldn't go there, personally.
YMMV.
One thing just to add to this - If it is as above I would suggest that you are careful with the lease agreements. A freind of mine had something similar to the above and because he had a single lease covering both the commercial property AND the BTL upstairs he is having the devil of a time trying to evict them for non-payment.It's more like 2 BTL flats and a low calibre short lease tenanted commercial premises.
There's potential for that to be a lot more work and risk than a single larger commercial property.
Location is 95%+ of the equation you need to consider before committing to that particular setup.
I wouldn't go there, personally.
YMMV.
AIUI he should have got a commercial lease for the commercial part of things and a residential lease for the BTLs (even though it's basically one property)
If you think there’s a benefit at some future point to having the property in a company, it’s well worth buying it in a company in the first place. Otherwise transferring from your personal names to a company connected to you triggers SDLT at market value, so it’s very expensive to decide later.
However, buying in a new company means you’ll be giving personal guarantees so it’s not really separate from your own finances at this point. It’s often more expensive to get a mortgage for a company than individuals though with this type of property that may not be the case.
However, buying in a new company means you’ll be giving personal guarantees so it’s not really separate from your own finances at this point. It’s often more expensive to get a mortgage for a company than individuals though with this type of property that may not be the case.
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