Buying a commercial unit

[Quattromaster]

Happy new year folks, looking for some advice, as always.

Chatting to my brothers FIL over Christmas, he owns a small business park, 23 units I think, and owns/ rents them all out bar 1 which he does not own, the guy who does own it is retiring and it's up for sale . Still has 87 yrs on lease.

I mentioned I'd a few pennies I was looking to invest and he wanted to buy it, and would offer me 6% on any money I lent him. I'd look to lend him 50k.

But then I started to think, dangerous I know, why not buy the unit instead, it's up for 100k, put down my 50k, mortgage the rest, rent it out, other units of same size rent for 10-12 k a yr.

I already have 5 houses I rent so am used to dealing with tenants and problems that arise with being a landlord, just never with a commercial building.

So, what to do

Lend him £50k and get 6% for pretty much doing nothing

Buy it myself and with luck get 10-12% but also all the aggro that goes with renting it! plus of course mortgage costs.

Leave money in bank earning bugger all

Buy another house to rent

Buy a car,coke,hookers,blah blah blah.

As a side note, I own an acre of land that at present I run my company from, I'm looking at getting permission and building 10 ish houses on this land in the next 5 yrs, if this goes ahead I will be looking for a unit to move my business into, this one for sale is perfect, only being 4 miles away and the perfect size.

Thanks in advance for any pointers and help.

[tooldtocruise]

Id buy it you obviously know what you are doing if you have got that far and you will regret it if you need it yourself soon

Why hasent the bloke got the cash to buy if he rents all the others.. Must like the coke and hookers himself

[zedstar]

If the brothers FIL has 22 units and getting even 8k p.a. from each then that's £176k, if he needs £50k to get some additional finance or can't raise £50k from the bank then I'd not be lending my money. Unless you get a first charge on the unit obviously....

[HoHoHo]

zedstar said:

If the brothers FIL has 22 units and getting even 8k p.a. from each then that's £176k, if he needs £50k to get some additional finance or can't raise £50k from the bank then I'd not be lending my money. Unless you get a first charge on the unit obviously....

That makes good sense to me.

I own three units on one site in a small local village and as a pension it makes perfect sense. I use two myself and have the third on a long lease. The advantages of working from your own building/s are massive and I really don't understand why more people don't look to buy commercial property.

[jonah35]

zedstar said:

If the brothers FIL has 22 units and getting even 8k p.a. from each then that's £176k, if he needs £50k to get some additional finance or can't raise £50k from the bank then I'd not be lending my money. Unless you get a first charge on the unit obviously....

Don't lend the money. If an bank doesn't think he's good enough that's a sign,

[Chrisgr31]

There may be reasons for keeping the one unit in separate ownership. I obviously don't know the layout of the units, but of course if the FIL was to sell the rest of the estate for redevelopment this unit might become very valuable, if it stops a number of schemes from being done.

[JQ]

zedstar said:

If the brothers FIL has 22 units and getting even 8k p.a. from each then that's £176k, if he needs £50k to get some additional finance or can't raise £50k from the bank then I'd not be lending my money. Unless you get a first charge on the unit obviously....

Absolutely this. If I owned 22 units on an estate and the final piece of the jigsaw became available I would be buying it as quickly as humanly possible, and no doubt my current bank would be keen to lend me the money. I certainly wouldn't want to involve third parties into the picture and potentially create a future ransom element.

There is something more to this and I'd be very wary of lending him the money.

[Mr Pointy]

How is tour brothers' FiL going to feel if you steal the unit away form under his nose?

[Quattromaster]

zedstar said:

If the brothers FIL has 22 units and getting even 8k p.a. from each then that's £176k, if he needs £50k to get some additional finance or can't raise £50k from the bank then I'd not be lending my money. Unless you get a first charge on the unit obviously....

The guy owns and runs a building company, the business park was built as a retirement fund for him, the rents have been paying back building costs, finishing when he is due to retire in approx 3-5 yrs.

He is a great guy, but does like the finer things in life, hence the option to borrow the money himself is a no go I would of course make sure I had a charge on the unit.

As for how he would feel if I bought the building myself, who knows, I would not do it behind his back, I'd let him know my plans, and that I felt buying it myself would be the better option. I'd like to think he would prefer myself as the owner rather than somebody he doesn't know.

Thanks for pointers so far folks, are there any other differences between renting out houses and commercial property that I should be aware of, and major costs I've not taken into account.

[red_slr]

Yes commercial is generally quite different to domestic lease.

[IATM]

I find this topic very interesting. I have been investigating and looking into commerical property myself over the last 6 months and I have got to know a couple of people who have what I would say is a nice size portfolio. One has in excess of 100 propeties and the other I spoke to today had around 20.

I find it really impressive how people even manage to do this and my hat goes off to them.

[surveyor]

Commercial generally harder to rent, but tenants changeover less often.

Commercial leases put more onus on the tenant, eg no gas safety certificates.

Rates can be much higher, and if (industrial) empty over 6 months they will be coming to the landlord.

[andyb28]

A possible good way to do this is to have a SIPP pension and then buy the property through that.

[Quattromaster]

andyb28 said:

A possible good way to do this is to have a SIPP pension and then buy the property through that.

Interesting, this is something I had in back of mind to look into, best bring it to the front and investigate further.

Thanks for all pointers so far folks.

[Googie]

Would be cautious around this. If I understand correctly you are looking at the FH which is subject to a 87 year lease . If so this is a ground lease which is likely to be at a depressed rent with limited potential for growth at rent review.