Commercial Property
Discussion
Depends on the area. East London is way too expensive at the moment. I was offered a 3,000 sq ft property for £450,000 which in my opinion is way too much.
Having said that, I'd rather invest in commercial rather than residential.
Personally I'm not looking at anything until early next year. Waiting for the economy to go belly up.
Having said that, I'd rather invest in commercial rather than residential.
Personally I'm not looking at anything until early next year. Waiting for the economy to go belly up.
I've got a fair bit of commercial property and I'm vary happy with the arrangement.
Basically, you can expect about an 8% return on investment. So a £300k building will generate (circa) £24k rent. With a business renting you have less hassle collecting the rent (get them to arrange a standing order). The property is likely to keep up with inflation so it's an asset which you can sell if you ever need to. So comfortable am I in commercial property that I cashed in my pension (at some cost) and have bought property instead.
Basically, you can expect about an 8% return on investment. So a £300k building will generate (circa) £24k rent. With a business renting you have less hassle collecting the rent (get them to arrange a standing order). The property is likely to keep up with inflation so it's an asset which you can sell if you ever need to. So comfortable am I in commercial property that I cashed in my pension (at some cost) and have bought property instead.
srebbe64 said:
I've got a fair bit of commercial property and I'm vary happy with the arrangement.
Basically, you can expect about an 8% return on investment. So a £300k building will generate (circa) £24k rent. With a business renting you have less hassle collecting the rent (get them to arrange a standing order). The property is likely to keep up with inflation so it's an asset which you can sell if you ever need to. So comfortable am I in commercial property that I cashed in my pension (at some cost) and have bought property instead.
Interested to know what you have that shows 8%? The market is stupidly hot at the moment as lots of people are piling in, pushing prices up and yields correspondingly down to 4 or 5%. Be careful when looking at tenants as well. Small companies are going to be the first to struggle if we are heading into a recession.
williamp said:
You're a bit behind, I'm afriad. Its now unusual to get good quality commercial property at all- most have already been bought.
I know because I work with a lot of companies looking for accomodation, and all we can find is property for lease
A slightly pessimistic view imho. Plenty comes up for auction every month as well as private treaty. Just got to look in the right place.
Well bought commercial property will return 8% all day long. Well geared can see good returns of 14%. Add to that you used to be able to lock in upward rent, often every 4 years, and that would improve the return even more. That of course has a corresponding increase in value.
The beauty of commercial property is as follows:
* Usual length of tenancy
* Full insure and repair leases
* Difficult for any old tom and his uncle to obtain financing for
* Easier to guage value, as opposed to resi where punters cause price fluctuations beyond logic.
* In essence you can quite easily "fire and forget"
The cons:
* Mortgages usually for shorter periods
* Interest only mortgages not really possible, banks most often require repayment, usually over a 20 year period
* bigger deposits are required (bear in mind leverage works both ways, a sensible level is best for long term sustainability.20% deposit is the norm, but most banks are open to negotiation based on each cases merits).
It is certainly not as dangerous as residential property to get into at the moment.
The beauty of commercial property is as follows:
* Usual length of tenancy
* Full insure and repair leases
* Difficult for any old tom and his uncle to obtain financing for
* Easier to guage value, as opposed to resi where punters cause price fluctuations beyond logic.
* In essence you can quite easily "fire and forget"
The cons:
* Mortgages usually for shorter periods
* Interest only mortgages not really possible, banks most often require repayment, usually over a 20 year period
* bigger deposits are required (bear in mind leverage works both ways, a sensible level is best for long term sustainability.20% deposit is the norm, but most banks are open to negotiation based on each cases merits).
It is certainly not as dangerous as residential property to get into at the moment.
Interesting take on the resi v commercial angles
My big fear on commercial property would be having the thing empty. You can always find tenants for a resi. Mine has had four tenancies in two and a half years and never a gap between them
Commercial can sit empty, especially if a tenant goes bust.
One bit of info that would be useful is whether commercial mortgages are getting as tight on interest cover as resi's. We were supposed to establish 130% interest cover although in the end we never did. Because we self manage we get by on about 110% - long term aim so the fact we are not making much cash at the moment is not really an issue
So does 8% yield on a 20% deposit get passed the banks interest cover requirements at the moment?
My big fear on commercial property would be having the thing empty. You can always find tenants for a resi. Mine has had four tenancies in two and a half years and never a gap between them
Commercial can sit empty, especially if a tenant goes bust.
One bit of info that would be useful is whether commercial mortgages are getting as tight on interest cover as resi's. We were supposed to establish 130% interest cover although in the end we never did. Because we self manage we get by on about 110% - long term aim so the fact we are not making much cash at the moment is not really an issue
So does 8% yield on a 20% deposit get passed the banks interest cover requirements at the moment?
Er 'no commercial prop around' have you looked at all the commercial auctions every couple of months?
Try Allsops, Jones Long Lasalle, Cushman etc etc
Commercial borrowing costs more than BTL though.
Safe blue chip tenanted props with a rent review in the next couple of years sell at about 5-6.5% return. Pretty poor, unless you're a cash rich Arab, Russian Oilgarch(sp?) etc
Try Allsops, Jones Long Lasalle, Cushman etc etc
Commercial borrowing costs more than BTL though.
Safe blue chip tenanted props with a rent review in the next couple of years sell at about 5-6.5% return. Pretty poor, unless you're a cash rich Arab, Russian Oilgarch(sp?) etc
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