Buy to Let : Commercial or Residential?
Discussion
burnt said:
Hello,
Just wondered what the consensus is.
Pros and cons to both I suppose: ie: Commercial tend to have longer leases and won't wreck the place..
Looking to get somewhere in the next couple of months.
Thanks.
Just wondered what the consensus is.
Pros and cons to both I suppose: ie: Commercial tend to have longer leases and won't wreck the place..
Looking to get somewhere in the next couple of months.
Thanks.
I wouldn't bet that commercial users won't wreck the place! They can easily do lots of damage. In offices they can install partioning, damaging suspended ceilings in the process, pour srap on carpets etc. In industrial units they can spill oil, cut holes in the floor, remove offices, install offices etc.
Doesn't help you mak a decision though and you may be able to get a good strong covenant for a tenant whjo won't do these things
chrisgr31 said:
Doesn't help you mak a decision though and you may be able to get a good strong covenant for a tenant whjo won't do these things
This is going to be rather dependent upon your budget imho. If you haven't got a lot to spend, you'll only be buying a small property, and by definition, you'll end up with a small company as a tenant. The bigger the budget, the bigger the building and potentially the bigger the tenant, and therefore the better the covenant. Doesn't always hold true though that bigger companies look after properties better, as I've seen some shockers in my time, most noticeably vacated bank units!
With commercial you can often get the tenant to enter into a long-term fully maintaining lease. This means that the tenant pays for all the maintenance of your property including the insurance and everything, the aim being that every penny they pay in rent is profit.
However, you do still have the problem of them trashing the place, but you usually have a covenant in the lease that lets you send workmen in to sort it out and then sue the tenant for the cost of the workmen.
However, you do still have the problem of them trashing the place, but you usually have a covenant in the lease that lets you send workmen in to sort it out and then sue the tenant for the cost of the workmen.
I think the thing with commercial properties is when the tenants just suddenly f-off because of business failure or whatever other problem and just leave the property in a bad state costing the landlord a fair sum to get the property back into a rentable state. However, I think this can be avoided by firstly picking the type of tenant you get into the property. Its general consensus among the industry that catering business's are bad news so a lot of companies just choose to avoid these businesss. One thing that some landlords choose to do is to ask for three to four months rent upfront which is refundable at the end of the rent as long as the property is returned in a reasonable state.
Too many variables to give good advice (not that I know much about the letting side!).
From a legal aspect, expect to pay around £1500/£2000 minimum legal fees to put a commercial letting in place depending on the complexity of the deal. You'd need to think about whether you take personal guarantees from the directors of small limited companies or parent company guarantees where relevant. You might want to consider a rent deposit deed where you collect say three months rent upfront.
Most leases of small properties are now excluded from the security of tenure provisions of the Landlord and Tenant Act - if you were buying a property with a commercial tenant in situ you'd want to be very sure that the requirements of either system (it changed) have been complied with properly. Most commercial lets now are around 5/10 years for small properties - long lets are less popular.
You need to think about how much you've got to spend/borrow, how long you want to invest for, what return do you need to make.
Comm Prop can be a very good investment over the long term.
From a legal aspect, expect to pay around £1500/£2000 minimum legal fees to put a commercial letting in place depending on the complexity of the deal. You'd need to think about whether you take personal guarantees from the directors of small limited companies or parent company guarantees where relevant. You might want to consider a rent deposit deed where you collect say three months rent upfront.
Most leases of small properties are now excluded from the security of tenure provisions of the Landlord and Tenant Act - if you were buying a property with a commercial tenant in situ you'd want to be very sure that the requirements of either system (it changed) have been complied with properly. Most commercial lets now are around 5/10 years for small properties - long lets are less popular.
You need to think about how much you've got to spend/borrow, how long you want to invest for, what return do you need to make.
Comm Prop can be a very good investment over the long term.
I have a residential buy to let even though my specialism is commercial property and for me the biggest issue is downtime - how long the property might stay empty.
With commercial premises you have long lead in times. Even if you find a tenant they will usually want a rent free period for fitting out as well.
With residential I can cut the price and get a tenant in within a couple of weeks.
Empty property with monthly payments on the mortgage is the single biggest cost of running an investment property and I just prefer the easier and faster process with resi.
With commercial premises you have long lead in times. Even if you find a tenant they will usually want a rent free period for fitting out as well.
With residential I can cut the price and get a tenant in within a couple of weeks.
Empty property with monthly payments on the mortgage is the single biggest cost of running an investment property and I just prefer the easier and faster process with resi.
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