Buying a commercial property

[tony84]

What do we think, good time or bad?
I currently rent and its one of those managed offices. I pay an amount which covers everything. Its not a bad price, less than I would be paying on a mortgage and bills.

I do not need to buy, but I just feel like it might be a better long term idea. But on the flip side, I cant help but think it would not take a lot for the country to go to pot and property prices to drop. So I would rather not buy just before a crash, but at the same time I am not sure if there will be a crash...

What would you do?

 

[Mark T Jones]

Commercial property doesn't behave in the same way as residential, but it's hard to say where it will go

TBH my first priority would be to ensure that your business can justify it and treat anything else as bunch

Also, take tax advice, as there are different approaches

 

[WaveJumper]

Don't see a property crash coming in fact quite the opposite as those richie richie types see the commodities markets cooling over the next year more money will pour into the commercial property scene (which is doing ok) and private housing prices I predict will see a massive explosion in price.

For me the bigger question would be how could you twist the purchase to your advantage tax wise, buy through pension fund, buy through a second company etc etc ie how best you you make the numbers and tax advance work for you .......and of course if you own it, its an added income for when you retire

 

[pentel]

One way to consider this would be that the rent, whilst being tax deductible is gone. The mortgage is buying an asset. I have been ion the same position as you a couple of times over the years and have always purchased. It is a huge benefit when you eventually retire. You should consider either buying through a holding company ( the holding company becomes the landlord for the trading company) or buying through your pension ( the pension becomes your landlord)

 

[KM-Tiger]

I think this is like waiting for the best time to go on holiday. If you are not careful you won't ever go.

As one who has profited handsomely from commercial property, I would say go for it. But as others have said get advice to make it tax efficient, and I would add make sure you are in a position to be in it for the long term come what may.

 

[Chris Ashdown]

Whilst units of whatever size seem to be in constant need, Office's are a different thing, shops are closing in town centers and corner shop type units so maybe not the best option as easily turned into a over suply of offices, so suggest a small workshop/warehouse unit with small office may be a better bet long term

 

[bodgitt&scarperLTD]

What do we think, good time or bad?
I currently rent and its one of those managed offices. I pay an amount which covers everything. Its not a bad price, less than I would be paying on a mortgage and bills.

I do not need to buy, but I just feel like it might be a better long term idea. But on the flip side, I cant help but think it would not take a lot for the country to go to pot and property prices to drop. So I would rather not buy just before a crash, but at the same time I am not sure if there will be a crash...

What would you do?

I always assumed someone in your situation would work out of a nice home office in a log cabin in the garden, rather than rent an office!

 

[bodgitt&scarperLTD]

and private housing prices I predict will see a massive explosion in price.

With what money?

Nothing is moving at current prices, nevermind at higher prices. First time buyers can't afford to buy in at the previous highs as interest rates are now normalising from silly lows, so we are in a stalemate. There's currently enough pressure (job losses, recession) to lead to the forced sales which would bring the market down- but nothing selling either!

The managed money you allude to may well be interested in some brand new build to rent units, but they are not interested in a higgledy piggledy mix of units, in various states of dilapidation, with all the tax perks of yesteryear gone as well. Not to mention ever increasing regulation on the sector to try to drag up standards.

 

[DontAsk]

I always assumed someone in your situation would work out of a nice home office in a log cabin in the garden, rather than rent an office!

Then you get into all the hassle over who actually owns the home office and what happens when you try to sell the house with a commercial office in the garden, business rates, VAT, etc., ... There are threads about the associated problems.

Nothing is moving at current prices, nevermind at higher prices. First time buyers can't afford to buy in at the previous highs as interest rates are now normalising from silly lows,

Nonsense.

Properties are selling like hot cakes (at least round here) at the moment, due mainly to the impending stamp duty increase. Two of my children easily got mortgages as first time buyers. One completed last week, the other is imminent. And no, they were not helped out by bank of mum and dad.

I do, however, think there will be a cooling of house prices come April 1st, much like happened after the rush to buy when double MIRAS was abolished.

 

[tony84]

I always assumed someone in your situation would work out of a nice home office in a log cabin in the garden, rather than rent an office!

I am not rich enough to go and fork out £10k for a cabin in the back garden. If I am outlaying large amounts of money, I want it to be an investment not a liability. I would never get that money back.

 

[FreddyG]

Properties are selling like hot cakes (at least round here) at the moment, due mainly to the impending stamp duty increase.

The UK housing market often throws up strange anomalies like that. Ignore!

The US is heading full-tilt into a recession (headed by the housing market) and will almost certainly pull the UK in with it. It began with commercial real estate and has now reached first and second-time buyers. The stock market is in decline and the NASDAQ-100 is down 10% in ten days.

People think that everything will be OK - until it isn't! I have never seen any situation like this - ever! Maybe 1929 would be a parallel. If you have ANY spare cash, buy physical gold (e.g. gold 1oz Britannias - and tax-free!) or anything else that is a physical asset.

 

[Mark T Jones]

Then you get into all the hassle over who actually owns the home office and what happens when you try to sell the house with a commercial office in the garden, business rates, VAT, etc., ... There are threads about the associated problems.


Nonsense.

Properties are selling like hot cakes (at least round here) at the moment, due mainly to the impending stamp duty increase. Two of my children easily got mortgages as first time buyers. One completed last week, the other is imminent. And no, they were not helped out by bank of mum and dad.

I do, however, think there will be a cooling of house prices come April 1st, much like happened after the rush to buy when double MIRAS was abolished.

There are a couple of significant points here

First, nobody knows. We are all just guessing - with different angles, different knowledge and experience - but without future vision. My guess is that the market will be stagnant for at least 18 months - though my hope is that it will fall by 25% (unlikely, because it didn't spike like the last time that happened) because the housing shortage is specifically a shortage of affordable homes.

Second 'the market' is essentially a distraction. What matters is 'your' market - by location, propery type etc. Most people will tell you the high street is dying - but I can point to towns where it is impossible to lay hands on a unit - they are all snapped up before they hit the market. That's why broad-sweep predictions should be avoided

 

[Chris Ashdown]

If you keep the building in your back garden and don't register it, then the savings on rent may well soon be greater than any asset increase. The modern log cabin can make great garden offices and easy self build in kit form Example https://www.gardenbuildingsdirect.c...g Cabins - 17662 - BillyOh Kent Garden Office

 

[eteb3]

If you keep the building in your back garden and don't register it

If the biz is a company it will probably acquire an equitable lease in the building; and in a liquidation that is going to be a royal pain.

 

[Byzantium]

I am buying a building in the next couple of months, even though I don't want to. So why do it ?

Well, my lease is 4 years past the last overlooked rent review and the next rent review is next year which means that technically, I could be called for an increase backdated 4 years and for this year and then face another increase for the next 5 years.

I pay just under £20k for this building. If the overlooked rent review came out at £25k, I'd be faced with a 5 x £5k = £25k lump sum due now and if the new rent review went up another £5k to £30k, then I'd be paying 5 x £10k = £50k over the next 5 years with likely upward reviews going forward from that point.

The building which includes a 3 bed flat above a ground floor commercial plus space to develop 2 more flats or 1 x 3 storey house is being offered for £400k.

So I put down 20% or £80k which is broadly equivalent to my rent review uplifts over the next 5 years and the mortgage on £320k is about £30k a year over 20 years, effectively offsetting the rent I would otherwise have to pay.

If I add £250k for the building works I can increase the capital value by £400k and with 3 flats and the commercial unit it would rent collectively for around £100k a year.

So it works and makes a profit and is a great deal but an unwanted headache at the wrong time.

 

[SillyBill]

We bought ours, it made very little sense in the short term, it took cash out the main business with a very chunky deposit afterall, so its a long term play. Also the mortgage payments were much larger than our rent so again took working capital away from us for a good while after. I personally saw it as an insurance policy for the business, that once bought outright would mean we have no mortgage or rent and can afford to earn less/make less profit if the worst comes to it. I had very little interest in appreciation value (still don't), it was simply a short term "suck up" to ensure long term we don't have that very large monthly fixed cost coming out that a lot of others businesses do.

 

[fisicx]

A friend once said to use a holding company to buy the property then lease it to the main business. This means if the main company goes belly up you still have the property. Not sure if this advise is still good but it makes sense.

 

[SillyBill]

That is very common. The only issue can be sometimes how you get money into the holding company to do it in the first place (deposit and sometimes the rent from the trading company might not cover the mortgage) if the trading company has all the money; you have a fudiciary responsibility to act in the trading company's interest. Giving its money away to another company which will then lease the asset back to it is fraugt with danger unless you get proper financial advice/tax planning.

 

[Mark T Jones]

TBH I think this is going dangerously down the route of pub advice

The OP must take personal, dedicated advice if they choose to proceed

 

[tony84]

TBH I think this is going dangerously down the route of pub advice

The OP must take personal, dedicated advice if they choose to proceed

Im a mortgage broker... who do I get advice from
I have decided to hold off. I am still looking and if something ideal comes up then I will go for it. But because of how everything is at the minute, I cant help but think cash is king.

The points raised about cashflow is another issue. At the moment I am paying rent which includes all bills. I could probably get a mortgage for the same as my rent, but I would then have to pay utilities which would then make it more expensive. Thats fine, but with the way everything is, its probably not a great idea to be giving up my savings and increasing my monthly commitments.

 

[MikeJ]

We did the pension thing about 20 years ago. We had most of the cash available, and took out a small mortgage for a few years. We sold the company almost 6 years ago, but the new owner is happy to continue renting from us as they've a policy of not owning property. We're getting a return of about 8% or so, which isn't bad for a "safe" investment.

The main downside is being able to sell the building on if you need the cash in the pension at some point. That's not on the immediate horizon fortunately, so it's something that suits us well.

 

[PaulThompson]

Hi @tony84
I know I'm a bit late to the party on this one but it's bang in my wheelhouse so might be able to shed some light!
(Full disclosure - I am a finance broker so have a vested interest!)
Here are my five thoughts on why you should! I'm afraid for the counter arguments someone else will have to chip in!

1. My clients who purchase the freeholds of their premises generally pay lower mortgage payments then they currently pay rent.
2. There's always a chance that rates will come down (not just the market but also because over years as you pay off capital and/or the value of the property increases) but rent almost never goes down.
3. It's an asset which one day, in 15, 20 or 30 years will be yours (or the business's)
4. You get to invest in & improve the property which will potentially fuel business growth for the future
5. There are increasing options to convert to residential use, possibly increasing the value and allowing you to move the business into a new location

Oh - and - as an aside, if you are buying at a discount or if you are in the type of business where goodwill is part of the value (hotels, pubs, care-homes, daynnurseries etc) then we can fund very close to 100% of purchase price!

Hope that's helpful and not too "advertorial"!

Take care
Paul.

 

[tony84]

You were already on my list of people (the list is only 3) to call if anything crops up.

 

[PaulThompson]

You were already on my list of people (the list is only 3) to call if anything crops up.

Thanks Tony, I appreciate that
I'm available if you need an advice call anytime, I like to help lining ducks up in advance rather than dealing with the problems of unaligned ducks at a later stage!

 

[greyster]

What do we think, good time or bad?
I currently rent and its one of those managed offices. I pay an amount which covers everything. Its not a bad price, less than I would be paying on a mortgage and bills.

I do not need to buy, but I just feel like it might be a better long term idea. But on the flip side, I cant help but think it would not take a lot for the country to go to pot and property prices to drop. So I would rather not buy just before a crash, but at the same time I am not sure if there will be a crash...

I rent a managed office, covering all costs, cheaper than a mortgage. Buying feels smarter long-term, but I’m wary of a potential crash. Property prices could drop if the economy tanks, so I’m hesitant to buy now. Still, I’m unsure if a crash is coming or not. Tough call!

 

[pentel]

I rent a managed office, covering all costs, cheaper than a mortgage.

If you buy at some point the building will be yours with no mortgage to pay. Carry on renting and the cost is only going to go one way....

 

[PaulThompson]

What do we think, good time or bad?
I currently rent and its one of those managed offices. I pay an amount which covers everything. Its not a bad price, less than I would be paying on a mortgage and bills.

I do not need to buy, but I just feel like it might be a better long term idea. But on the flip side, I cant help but think it would not take a lot for the country to go to pot and property prices to drop. So I would rather not buy just before a crash, but at the same time I am not sure if there will be a crash...

What would you do?

What DID you do in the end? Seeing as the thread just woke up!

 

[tony84]

Im with @greyster I am still renting a managed office.
The only place that I found I would buy the current owner put it up for sale or rent. When I asked about buying it they tried to get me to rent.

Gave them my details and said if anything changes to give me a shout. Not heard anything and as of last week it was empty so will see what happens.

 

[Byzantium]

So I completed on the property in August and the valuation came in at £530k on a £400k purchase price, both at current rents. Given the forward rents, the prospective value would be over £600k and that is having done nothing.

So whilst I appreciate I had a generous landlord come vendor and a decent period to complete, the loss of circa £100k of capital has built over £250k of value and I think we could renovate the residential and flip for near to £600 taking out nearly £300k.

 

[Chris Ashdown]

My question is why the owner sold it £130k less than your quoted valuation

 

[PaulThompson]

My question is why the owner sold it £130k less than your quoted valuation

There are a lot of circumstances when this can happen - a motivated vendor, a buyer with an "advantage" in the transaction (sitting tenant business maybe). We see a lot of these transactions and can often fund them on the value rather than the purchase price.

 

[Mark T Jones]

There are a lot of circumstances when this can happen - a motivated vendor, a buyer with an "advantage" in the transaction (sitting tenant business maybe). We see a lot of these transactions and can often fund them on the value rather than the purchase price.

Nonsense. The price a property sells for is market value - unless there is a hidden agenda. Nobody knowingly/deliberately sells below market value

Valuers may under value or over value, which reflects their own insight and knowledge.

 

[Sam Nelson]

I am buying a building in the next couple of months, even though I don't want to. So why do it ?

Well, my lease is 4 years past the last overlooked rent review and the next rent review is next year which means that technically, I could be called for an increase backdated 4 years and for this year and then face another increase for the next 5 years.

I pay just under £20k for this building. If the overlooked rent review came out at £25k, I'd be faced with a 5 x £5k = £25k lump sum due now and if the new rent review went up another £5k to £30k, then I'd be paying 5 x £10k = £50k over the next 5 years with likely upward reviews going forward from that point.

At that stage, it stopped being an emotional decision and became a risk-management exercise. Comparing rent exposure, backdated liabilities, long-term cash flow and asset control side by side made the buy option clearer. Having everything structured — purchase costs, finance, units, timelines and compliance — is essential when decisions are forced rather than planned, which is where platforms like are genuinely useful for keeping the numbers and moving parts visible in one place. It doesn’t remove the stress, but it does reduce the chance of missing something expensive later.

The building which includes a 3 bed flat above a ground floor commercial plus space to develop 2 more flats or 1 x 3 storey house is being offered for £400k.

So I put down 20% or £80k which is broadly equivalent to my rent review uplifts over the next 5 years and the mortgage on £320k is about £30k a year over 20 years, effectively offsetting the rent I would otherwise have to pay.

If I add £250k for the building works I can increase the capital value by £400k and with 3 flats and the commercial unit it would rent collectively for around £100k a year.

So it works and makes a profit and is a great deal but an unwanted headache at the wrong time.

Another angle worth considering is negotiation and sequencing, not just whether to buy or not. Given the rent review risk, you may have more leverage than it feels even a short-term rent concession, delayed review, or written agreement limiting backdating could improve your cash position while you line everything up properly. It’s surprising how often landlords will deal once a sale becomes credible rather than theoretical.

 

[alamest]

This comes up a lot, and the honest answer is that buying a commercial property can make sense, but only if you go into it with your eyes open.

The biggest thing people underestimate is how different commercial property is compared to residential. Financing is tougher, deposits are usually much higher, and lenders care far more about the strength of the tenant and lease than the building itself. If the unit is vacant, or the tenant leaves, you’re still on the hook for business rates, insurance, and maintenance, which can add up quickly.

That said, if you’ve got a stable tenant on a decent lease (5–10 years, ideally with rent reviews), the numbers can be predictable and less hassle than residential in some ways. Fewer regulations, no tenant deposit schemes, no constant rule changes like you see with buy-to-let.

I’d strongly suggest getting a proper survey done, understanding the lease terms inside out, and speaking to a commercial mortgage broker before committing. Also worth budgeting for longer void periods — they’re normal in commercial, not the exception.

In short: it can work well as part of a wider plan, but it’s not a “set and forget” investment and definitely not something to rush into.