Toggle sidebar

Commercial Property vs Residential

  • Thread starter Thread starter musicman21
  • Start date Start date
Sort by date Sort by votes
M

musicman21

Afternoon All,

I'm considering purchasing some property for between £50k - £100k. In my area there is a couple of apartments and business units which look suitable.

I'm just looking for some broad strokes opinions from people who are in this business, about whether you would consider property or residential the better option.

I'll be having a meeting with my accountant to discuss in detail the various tax implications with regard to how we structure the buying process, captital gains implications etc etc

But I'm just wondering from experience if people find that one tends to work out overall better for you than the other?

Cheers
 
Commercial is a less pain option where the lease terms are FRI. It could be painfull when rent reviews etc are disputed. It may be a problem during sale if not a going concern (VAT problems). Speak to you accountant about this.

Apart from this, commercial is easy to manage. No pain of new tenenats every 6 months. No pain of maintainence.
 
Upvote 0
Batra isnt there a flip side that with commercial I assume we are talking about properties for businesses.In this current climate you could have a premises empty for a long time.
 
Upvote 0
If you are a novice I would say go for residential for the reason which is probably the most critical.

Residential property is never going to be empty for long - you just tinker with the rent until it is at the correct level for people to want to rent it and £10 per week can make all the difference. Having let large volumes of residential property for the last 20 years, we have never had one empty for longer than a week or two and have generally managed to get new tenants to move in on the day that the old ones move out.

Commercial property on the other hand can sit empty for months and even years just because no-one wants to rent it regardless of the rent it's at.

So if you want a financial return on your money then residential is a safer bet (provided you buy wisely).
 
Upvote 0
Batra Ventures UK Limited said:
No pain of new tenenats every 6 months.
Click to expand...

This hasn't been a problem for us. On average our tenants stay for 3-4 years. I forget who they are sometimes as I don't hear from them for years. Looking at the commercial units around me we seem to have a 2-3 year turnover with the properties being empty for a good 6-12 months in between.
 
Upvote 0
deniser said:
Commercial property on the other hand can sit empty for months and even years just because no-one wants to rent it regardless of the rent it's at.
Click to expand...

And you now only get 6 months before you, the owner, become liable for Business Rates, whether the building is occupied or not.

A masterstroke from our govt during a recession.
 
Upvote 0
thanks for all the replies.

its interesting the points raised re vacant properties...this was the kind of thing I was hoping to hear about. we can do all sorts of smart things with the accounts but if commercial property is going to lie empty 20 or 30% longer than residential then the loss of income may well negate any advantages made on paper from tax benefits....
 
Upvote 0
musicman21 said:
thanks for all the replies.

its interesting the points raised re vacant properties...this was the kind of thing I was hoping to hear about. we can do all sorts of smart things with the accounts but if commercial property is going to lie empty 20 or 30% longer than residential then the loss of income may well negate any advantages made on paper from tax benefits....
Click to expand...

There are advantages to both commercial and residential, but I would hazard a gues that you would get more from residential given your budget... but much depends on where you are and where your property is?

Buying a business unit would probably cost all or most of your budget, but depending oon location and how you feel about debt, £100K can buy a lot more in residential.

for example
67475_Auc18C12_IMG_00_0000_t.JPG

1 bedroom flat for sale 13, Tillet Court, Tillet Road East, Norwich, Norfolk

From £50,000
PUBLIC AUCTION : Thursday, 03 June 2010


1 bedroom apartment for sale William Mear Gardens, Norwich, NR1

Guide Price £55,000
For Sale by Auction. Guide price £55,000 - £65,000. Purpose built apartment located within the favoured East city suburb of Thorpe Hamlet.

With a buy to let mortgage and 50% deposit, you could get three or four of this type of property with your £100K



http://www.ukbusinessforums.co.uk/forums/../EGPLPROPERTY12120523.htm
With these inducstrial units, you can only get 1 or 2.

Clearly this is based on Norwich, so it depends on the market where you are, but in terms of return on investment I would go down the residential route.

But do bear in mind that you need to get deposits up front and beware of Housing Benefit, it can cost dear in the long run and I know from experience.
 
Upvote 0
My dad was in the property business (so to speak) for many years, and owned numerous houses, all of which he rented out on a long term lease. Depending on where you are this can work really well if there is a US Forces Base near you (there are lots near us) - long term rental and good money.

Even if you're just looking at renting them out generally, I think it's pretty safe to say that in the current economic climate there is more demand for rental housing (as people can't afford to get on the property ladder) than there would be for industrial units (businesses cutting back etc.).

Hope that helps a little, and good luck.

Susan
 
Upvote 0
Bill /Susan,

Thanks for the additional replies. Residential was looking the best bet but you never know what nasty surprises lurk, so its good to hear from more people with first hand experience recommending it.

I'm based in belfast and what i'm looking at doing is splitting the £100k and getting two properties near the city hospital.

I'll certainly also investigate the housing benefit issue, i'm thinking of going for properties near to the hospital which would hopefully be ideal for foreign nurses and I would assume they would be good tennants, although only time will tell.

Do any of you make use of management companies?

Personally in my other businesses I eliminate as many links in the chain as possible, so my natural instinct would be not to use any third party, but as a novice in this field there may well be advantages. Does anyone have any opinions from personal experience?

Cheers
 
Upvote 0
What is the housing benefit issue then guys.
Do you mean people on DHSS.I thought people on these benfits would be good payers because it goes straight into your bank account from the local authority..Or do I have that wrong.
 
Upvote 0
If you are planning on managing it yourself bear in mind you'll need to arrange assured shorthold tenancy agreements with the tenants, sort of the repairs yourself and be the one who gets woken up at 3am when some stupid drunken tenant has locked themselves out the flat.... (can you tell I've been there??)

I'd say it very much depends on the state of the property too - if you spend a couple of weeks and a bit of cash upfront making sure the boiler works, the washing machine is properly sealed, the bath isn't leaking, the electrics properly checked etc. it'll save you a lot of money overall in terms of maintenance. Cheapy residential flats are likely to be hiding a mountain of bodge jobs behind the skirting boards, especially if they have previously been rental properties.

I'm de-bodging a former rental property at the moment - it's such a shame as it's a lovely house, but everything you open up is just a disaster area. Luckily we had a full survey done before we bought so we knew what we were getting into. That would be my other advice - get your own survey done!
 
Upvote 0
luvbusiness said:
What is the housing benefit issue then guys.
Do you mean people on DHSS.I thought people on these benfits would be good payers because it goes straight into your bank account from the local authority..Or do I have that wrong.
Click to expand...

The new Housing Benefit system means that tenants are given the money directly, who then have to pay the landlord, but some, decide that they would rather have a night out and sod the landlord.

My latest tenant left on Friday, owing almost £1,000, left the house a disgrace and a skip load of crap in the garden. It took 4 people two days to clean the house.

Hopefully the new tenant will not be as bad.
 
Upvote 0
musicman21 said:
Bill /Susan,

Thanks for the additional replies. Residential was looking the best bet but you never know what nasty surprises lurk, so its good to hear from more people with first hand experience recommending it.

I'm based in belfast and what i'm looking at doing is splitting the £100k and getting two properties near the city hospital.

I'll certainly also investigate the housing benefit issue, i'm thinking of going for properties near to the hospital which would hopefully be ideal for foreign nurses and I would assume they would be good tennants, although only time will tell.

Do any of you make use of management companies?

Personally in my other businesses I eliminate as many links in the chain as possible, so my natural instinct would be not to use any third party, but as a novice in this field there may well be advantages. Does anyone have any opinions from personal experience?

Cheers
Click to expand...

see http://www.nestoria.co.uk/belfast/house/sale#dyn:/belfast/house/sale/sortby-price_lowhigh

Buy-to-let mortgage

BM Solutions
Interest rate: 4.5% (then BBR plus 4.24% for Term)
LTV: 75%
Product Detail: 2 year tracker
Arrangement Fee: fixed fee £1999
Early Redemption Penalties: 3% for 2 years.

Buy 3 house around £60K, paying 50% deposit, mortgage will cost £112 a month, if rent is £250 (don't know the market in Belfast, but from initial search looks reasonable) then you can make £130 a month on each = £390

Buy 10, paying 15% deposit (10 x £9K=£90K) Mortgage on each £192, if £250 rent, then 10 x £58 per month = £580.

THIS IS JUST AN EXAMPLE

Alternatively

Much depends on local market conditions and having some in depth local knowledge.

If the property market is depressed and sellers are looking to get rid quickly, then driving the price down might be an option, offering £40K cash!!! Then immediately put on market for £50K.
 
Upvote 0
Billmccallum said:
The new Housing Benefit system means that tenants are given the money directly, who then have to pay the landlord, but some, decide that they would rather have a night out and sod the landlord.

My latest tenant left on Friday, owing almost £1,000, left the house a disgrace and a skip load of crap in the garden. It took 4 people two days to clean the house.

Hopefully the new tenant will not be as bad.
Click to expand...

Thanks for the info bill wasnt aware of that.What a crazy idea to give them the money direct.
 
Upvote 0
And also even if your Local Authority does pay you direct (which some will do), you still have the problem with how someone treats something they are paying for, and how someone treats something they get for free.

Not to put too fine a point on it, there is very little personal responsibility involved if they are having their rent paid for. Plus they are not likely to be working and therefore using the flat a lot more than, say, a 9-5er.
 
Upvote 0
Thanks again for the replies.

I think housing benefit will be avoided...

Some great advice there, what i think I'll probably do is get one now at £60k with a 50% deposit...give that a month or two to see how I get on and then get 2 more on the same basis.

If that then seems to be working then perhaps in a years time do as Bill suggests and look at smaller deposits in order to purchase more properties for the same money.

Virtuallysorted you mention the hassles on tenants contacting you in the middle of the night and so on. What I would probably do is keep a distance from them, set up the business from my office and give them one of my guys as a contact, probably only seeing them on the very first day to check theyre acceptable. This would mean they only have 9-5 contact, if they locked themselves out then they'll just need to find somewhere to sit until morning. Do you now use a management company?

I assume this is acceptable in general, their is no general rule that you need to have a 24/7 contact number?

I would probably just get a draft tenancy agreement and rent book drawn up once and just replicate this. I assume management companies would charge a fee for this every time etc

Does anyone have any other pros / cons or example costs of management companies?

Bill you sound like you have several properties do you manage them yourself? What's the recourse with the chap who left a skip of rubbish, just keep the deposit? But no way of getting your costs / money owed back , without incurring more costs with no guarantees?

Cheers
 
Upvote 0
musicman21 said:
Bill you sound like you have several properties do you manage them yourself? What's the recourse with the chap who left a skip of rubbish, just keep the deposit? But no way of getting your costs / money owed back , without incurring more costs with no guarantees?

Cheers
Click to expand...

I'll send you a PM
 
Upvote 0
You must log in or register to reply here.

Latest Articles

Top Bottom
Back