Buying first commercial (pub / bookies / flat)
Discussion
A friend and I are looking into buying a commercial property, it consists of;
A pub / bar, including in the sale, appx £18k pa rent.
A commercial space currently let to a chain book maker, 20 year lease at £17k pa.
A 3 bed flat let for £6k pa.
Space for another flat too.
It’s valued at appx 10x the the combined rent + VAT.
I assume it’d be best to set up a Ltd company / partnership with clear exit strategies, split, etc.
Funds will be our own as a deposit and then the rest mortgaged.
Just looking for some do’s / do nots, how to value it, the strength of existing lease agreements, and just best practise really.
Thanks.
A pub / bar, including in the sale, appx £18k pa rent.
A commercial space currently let to a chain book maker, 20 year lease at £17k pa.
A 3 bed flat let for £6k pa.
Space for another flat too.
It’s valued at appx 10x the the combined rent + VAT.
I assume it’d be best to set up a Ltd company / partnership with clear exit strategies, split, etc.
Funds will be our own as a deposit and then the rest mortgaged.
Just looking for some do’s / do nots, how to value it, the strength of existing lease agreements, and just best practise really.
Thanks.
The company selling it are rubbish, just copy and pasted their description back to me.
None of the questions answered.
As you’ve mentioned, and in my first post, I’m suspicious of why you’d be selling the bookies part with that agreement in place unless there is some sort of get out clause.
My best mate knows the lad who owns the buildings, I’ve been out a few times with him but wouldn’t say I know him, and he picked the pub up for next to nothing 10-12 years ago and actually split it to form the bar and bookies, property prices are cheap here so it must be almost pure profit from them.
Probably going to pass it up.
None of the questions answered.
As you’ve mentioned, and in my first post, I’m suspicious of why you’d be selling the bookies part with that agreement in place unless there is some sort of get out clause.
My best mate knows the lad who owns the buildings, I’ve been out a few times with him but wouldn’t say I know him, and he picked the pub up for next to nothing 10-12 years ago and actually split it to form the bar and bookies, property prices are cheap here so it must be almost pure profit from them.
Probably going to pass it up.
Don't give up so easily.
Useless agents might mean other people have been put off and the seller hasn't received any offers.
When you say 'valuing' do you mean they are marketing it approx. £410k? If that's what it's advertised for and there has been no other interest because the agent is useless, the seller picked it up cheap, he may be willing to listen to offers of much less.....?
The returns are better than you could get with purely residential. Being mixed use could save you the 3% extra stamp duty (at least on most of it) which you would have to pay if investing the same amount on resi.
Purchasing through a Ltd would be your best way if it is you and a new business partner and could also become VAT registered.
The main stumbling block could be your borrowing, depending on how much you were thinking of mortgaging - I doubt you will find a bank that will lend a new company money at sensible rates on such a mixed use building unless you are putting in a decent deposit. Guessing 50% min and even then there will be many hoops to jump through.
Useless agents might mean other people have been put off and the seller hasn't received any offers.
When you say 'valuing' do you mean they are marketing it approx. £410k? If that's what it's advertised for and there has been no other interest because the agent is useless, the seller picked it up cheap, he may be willing to listen to offers of much less.....?
The returns are better than you could get with purely residential. Being mixed use could save you the 3% extra stamp duty (at least on most of it) which you would have to pay if investing the same amount on resi.
Purchasing through a Ltd would be your best way if it is you and a new business partner and could also become VAT registered.
The main stumbling block could be your borrowing, depending on how much you were thinking of mortgaging - I doubt you will find a bank that will lend a new company money at sensible rates on such a mixed use building unless you are putting in a decent deposit. Guessing 50% min and even then there will be many hoops to jump through.
PurpleFox said:
The main stumbling block could be your borrowing, depending on how much you were thinking of mortgaging - I doubt you will find a bank that will lend a new company money at sensible rates on such a mixed use building unless you are putting in a decent deposit. Guessing 50% min and even then there will be many hoops to jump through.
I have heard similar via a surveyor - he's an experienced residential landlord and obviously knowledgeable of the commercial sector due to his job but, when we spoke last autumn, mentioned he is struggling to get finance for commercial property without previous/current investment in the sector - chicken/egg scenario.With regard to the bookies, although you have been told '20 year lease' I would imagine you will be getting the fag end of that term, and as others have said it will most likely have break clauses in it. The crackdown on fixed price betting terminals in the shops has seen the branches dropping like flies, I would take the view that they are coming out as soon as the lease lets them and any longer in occupation is a bonus.
The bar isn't as bad as may seem, once we are able then people are going to want to go out and a small bar might be quite popular. The other thing to bear in mind is that as long as it doesn't become some sort of drug den then there will always be people wanting to take a small bar unit as it's often been a wish of theirs to open one.
Commercial mortgages can be an issue, you will be looking at 60% LTV if you're lucky. Are you able to raise the cash against your current properties and then use the money to buy the property outright? Once it has proved itself you can then remortgage the commercial and pay back your first mortgage.
The bar isn't as bad as may seem, once we are able then people are going to want to go out and a small bar might be quite popular. The other thing to bear in mind is that as long as it doesn't become some sort of drug den then there will always be people wanting to take a small bar unit as it's often been a wish of theirs to open one.
Commercial mortgages can be an issue, you will be looking at 60% LTV if you're lucky. Are you able to raise the cash against your current properties and then use the money to buy the property outright? Once it has proved itself you can then remortgage the commercial and pay back your first mortgage.
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