Commercial Property Investor Podcast Residential Vs. Commercial Property Investing Explained
Do you already have some Residential and you’re on the fence? Is Commercial for you? Today we are going to discuss some key differences between Residential and Commercial property investing to help answer these two questions for you (and help you make a decision on your investing strategies).
It's important to know a Pension pot can make a serious difference to your Property strategies.
If you have a residential property and you have a pension (SSAS or a SIP); investing in residential is problematic and difficult. However, commercial property can sit inside a SSAS Pension. I am not a pension expert, but I do know how to make a CMO work in conjunction with a SSAS
Some of the Key Differences at a glance; Commercial Vs. Residential
- Commercial Investing; Differences getting into the deal; such as
- There's no additional Dwelling Supplement (ADS) with Commercial
- Land & Buildings Tax does apply
- VAT - it might be applied – but you could claim it back (including refurb).
- Can be up to 75% Loan to Value (LTV)
- The Valuations, Surveys and lawyers fees are generally more expensive. The contracts can also be more complex comparatively.
So what about the Finance?
- LTV dependant on Vacant Possession Value (value of the bricks & Mortar) or Open Market Value (value of the income/quality of your tenant).
- Experience is important to lenders too (they want to know you’ve got it!)
- Less lenders in this sector
- Some will lend when the Commercial property is within a mixed portfolio, but your residential lenders might not.
- Return on Investment (ROI) and Cashflow can be much higher.
Strategies- Commercial is not a single strategy
There's lots of strategies in Commercial just like in Residential.
Buy to Let (B2L)
Rent to Rent (R2R)
Deal Sourcing
Flipping
Lease options
Single lets & Multi-lets
HMO - CMO
SA – Serviced offices
There are many different locational differences; and values that will change depending on which sector you’re in; what location you’re in and what strategy you’re in.
Valuations
One of the key things is comparable properties to yours. This is to directly evidence the valuation given. In commercial, the comparable are there but they’re looking on the yields (What is the yield rate that the investors are expecting and paying for?), the covenants (quality of the tenant) & the length of the agreement (the security of the income).
Make sure to listen in to get an overview on all the differences as well as help develop your own knowledge and research further to make the right decision for you and your property investing. If you’d like to know more and delve deeper, make sure to join the CPI community and get engaging now
Key Moments
- “Commercial is not a single strategy; So strategies could be things you’re very used to i.e. Buy 2 Let,Deal Sourcing, Flipping, Lease options, Single lets & Multi-lets, HMO - CMO & Serviced offices”
- “There are many different locational differences; and values that will change depending on which sector you’re in; what location you’re in and what strategy you’re in.”
- “…You do have a choice of being passive or active as an investor; and ongoing as potentially an operator”
- “Most of the industry is geared up to people coming into the sector, to invest their money that they need somewhere else (rather than coming into commercial to try and develop equity & income and a living from commercial”
- “If you can double the yield… then you might actually be able to double the price.”
- “Why wait for the market to go up when you can force your own property value up (no matter what the market is doing”
- “It’s a subtle difference”
JOIN THE NETWORK
If you want to learn more about investing in Commercial Property why not consider joining the CPI Network? A community of active investors who collaborate, share experiences and empower each other in their Commercial Property endeavours.
Useful Links:
CPI Website - https://commercialpropertyinvestor.co.uk/
Our Sponsors - https://commercialpropertyinvestor.co.uk/podcast-sponsors/
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