Is Buying Commercial Property a Good Investment?
Investing in commercial property for the first time can be a daunting prospect. Providing you have gathered accurate information and reliable advice about your potential investments, commercial property can be a great area to invest.
This post will assess the advantages of investing in commercial property over residential investments.
What is Commercial Property?
Commercial property is purchased solely for profit-generating or business opportunities rather than for domestic or residential purposes. It usually refers to property that holds businesses such as offices or shops.
What Are The Types of Commercial Property?
There are a vast array of types of commercial property investments and, according to the British Property Federation, they account for 13% of the value of all buildings across the UK.
Commercial property is made up of a diverse range of property types which can include:
- Office space and car parks
- Retail outlets from high street shops to large shopping centres
- Factories, industrial units, and warehouses
- Leisure establishments such as pubs, hotels, gyms
- Land
What Are The Ways Of Investing in Commercial Properties?
The are two main ways of investing in commercial property which is either through direct or indirect investments.
Direct investments involve the buying of the physical “bricks and mortar,” whereas indirect investments are through investing in REITs funds, stocks, shares, and bonds of companies that specialise in commercial property. These investments pay a return based on increasing value and rental income.
What Is The Difference Between Investing In Commercial Property and Residential Property?
There are several differences between investing in commercial and residential properties including the following:
- For commercial property investment, you often have to put down a bigger initial investment. This is because the value of a commercial property is usually higher than for a residential one.
- Commercial properties can often take longer to sell due to their scale and because they appeal to a more niche market of investors, which makes them less liquid than residential properties.
- Often when you are renting out commercial property, the leases are much longer. On average they can be approximately 8 years. In comparison, buy-to-let investments generally have leases of between 6-12 months.
- In residential property, the tenants are individuals, families, or students and rent for domestic purposes, whereas in commercial properties the tenants are companies renting for commercial purposes.
What Are The Advantages of Investing In Commercial Property?
Investing in commercial property has many benefits and is considered a good long-term investment.
It is said that commercial landlords have greater protection under the law if the tenant fails to pay rent on time. On the flip side, when a residential tenant fails to make rent payments, it is down to the landlord to communicate with them and arrange a payment plan. If you can show that the tenant has made no attempts to work towards making payments, it can be a tricky and lengthy process to evict them. This process can cause landlords a lot of stress.
The relationship between the landlord and the commercial tenant is strictly professional and less emotional, whereas, in residential property, landlords are dealing with people who are using their property to create a home. This can often mean that if an issue arises, the situation can become very difficult when emotions are at play.
On the other hand, if a commercial tenant does not pay rent, the commercial landlord can apply for a court possession order to try to take back control of the property. It is important for commercial contracts to be drafted carefully to ensure that the landlord has options available if tenants do not make rent payments.
Stamp duty on residential property is higher than that on commercial property.
In the UK, 2% stamp duty is owed on residential property purchased above £125,000, whereas for commercial property, 2% stamp duty must be paid on property above £150,000.
A residential property landlord is responsible for repairs to the property whereas, with commercial property, the tenants are usually responsible for maintenance under the terms of the lease.
Is Commercial Property a Good Investment?
Yes, commercial property can be a very good investment because overall returns can be higher than those associated with investing in residential properties.
Commercial property investors can also save money on property taxes, building insurance, and maintenance costs because these become the sole responsibility of the business leasing the properties.
This is not the case for those investing in residential property. As a result of these factors, investing in commercial property is becoming increasingly popular for those investors looking to make substantial profits.
At Ackroyd Legal, no matter the situation, we have the skills and expertise to help you reach a favourable solution. If you would like further information on how we can help you with commercial property, please do not hesitate to contact us today on 020 3058 3363 or email enquiries.sa@ackroydlegal.com
