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Ackroyd Legal

By Carlin Peton

Do I Invest in Commercial or Residential Property?

It is important to weigh up the costs and the benefits to any venture before you invest, and commercial property is no different. Although the residential properties are what usually springs to mind when investment is mentioned, it is important to consider that commercial properties also have their benefits.

What is Commercial Property?

Commercial property simply refers to premises used for business activities. In recent years, leasing has become an increasingly popular method of purchasing property in the UK, potentially due to the longer lease structure in comparison to Europe and the US.
Navigating whether to think outside of the box and invest commercially can be a difficult choice to make, so we are here to put the facts before you.

Pros:

  • Investing in the whole property can be avoided through investment funds; if the process appears overwhelming, the find manager can manage the investments.
  • The rental income is far more stable than from the tenants of individual rental properties.
  • By investing commercially, you minimise the potential ‘wear and tear’ costs raised by the tenants of residential property.

Cons:

  • Some Commercial property can be large and costly if purchased outright, especially if you are a small investor.
  • The success of commercial property is more effected by external forces such as changes in the economy.
  • Be aware that if the building costs more than the rent that the property is bringing in, the investment is not going to be an asset to you.

What is Residential Property?

This property type is more commonly known amongst investors and describes a dwelling which is leased for non-business occupation. If you are purchasing a property to let, it is a good source of income, but there are also some potential downsides to consider:

Pros:

  • If you hope to let the property, there is always a demand for rented housing, especially due to high property prices and a growing population.
  • Investing in property isn’t always linear; property crowdfunding and peer to peer lending can give you stakes in the property market without the hassle of managing the property yourself.
  • Although property prices can fluctuate, physical property and income can be a beneficial way of spreading your assets.

Cons:

  • Owning a residential property is more hands-on as you will act as the landlord.
  • The tenancy on a residential property is much less reliable than on a commercial property due to the shorter period of tenancy.
  • Investing in residential property is not a very liquid investment and, if it’s not managed well, it can be difficult to find another buyer.

Conclusion

Whether you choose to invest in commercial or residential property, Ackroyd Legal will provide guidance on purchasing and extending leases to property development. Although both residential and commercial investments can appear daunting, our team of specialist solicitors are there to help you every step of the way.

According to the consumer choice brand Which?, “a typical lease length in a London office is generally between 10 and 15 years,” allowing for an increased element of security. This is contrasted with residential property which usually has a lease of “six months to a year”.