Buying a commercial property
Discussion
Had a few pieces of conflicting advice around this and wondered if anyone could offer some good info.
Currently run a car sales business. Have found a site to buy.
If my cars sales is XYZ ltd a few have said buy the property in XYZ holding ltd or such like.
Am I better to be looking at doing it this way and then charge rent or is it best to buy in the business?
Long term plan I highly doubt anyone will buy the car sales business off my, not impossible but I would say a less than 5% chance someone would want to buy in the next ten years.
I wish for that to continue to grow sustainably.
The commercial site long term plan is to keep, hoping it will go up in value and with where it is situated if the sales outgrows it either divide and sub let into a small number of units, or I think planning permission and sell to developers or even get involved in that further down the line.
Property site is a warehouse / distribution unit, £765k + VAT if that offers any bearing.
Thanks for any help, I realise on matters like this I can buy and sell cars but really don't know much else.
Currently run a car sales business. Have found a site to buy.
If my cars sales is XYZ ltd a few have said buy the property in XYZ holding ltd or such like.
Am I better to be looking at doing it this way and then charge rent or is it best to buy in the business?
Long term plan I highly doubt anyone will buy the car sales business off my, not impossible but I would say a less than 5% chance someone would want to buy in the next ten years.
I wish for that to continue to grow sustainably.
The commercial site long term plan is to keep, hoping it will go up in value and with where it is situated if the sales outgrows it either divide and sub let into a small number of units, or I think planning permission and sell to developers or even get involved in that further down the line.
Property site is a warehouse / distribution unit, £765k + VAT if that offers any bearing.
Thanks for any help, I realise on matters like this I can buy and sell cars but really don't know much else.
I can only offer a perspective as someone who had a commercial building for years and sold it and realised that for me, it wasn't the route to great riches or even capital growth ( despite what the fella from Touchstone education on YouTube tells me every time I log on to watch something)
As a general observation, given we're coming into a slowdown and increased interest rates, the purchase price maybe still at the top of the cycle and unless there's some external driver, these things can lose 10 or 20% of notional value very quickly.
Re the VAT and holding whether via co or personal, this is very situation specific so you need dedicated advice.
What I'm saying is in general unless the external driver of a developer coming along and paying a premium exists or you finding some angle to really get the yield up, the primary reason to own a property as a business is for peace of mind, that is no landlord but there is a balance between that feeling and how much you extra it costs for that feeling.
Commercial property around here (inside Western end of M25) is priced as if Rushi is still dishing out the free money but that's not the case, again your target could be different. The problem with asking a Surveyor is they can value it on a yield basis but if no reliable tenant can be found, that metric is redundant.
If I was doing it again, I'd apply these rules Assume you will be the only occupier, assume no capital growth (unless you hit lucky in the economic cycle), assume the risk of a short term dip in value and assume it's expensive to get in and expensive to get out.
Clearly the mechanics of rental and how it's paid is more an accounting function but if the thing stacks up from a peace of mind perspective, they may be enough to warrant the purchase.
As a general observation, given we're coming into a slowdown and increased interest rates, the purchase price maybe still at the top of the cycle and unless there's some external driver, these things can lose 10 or 20% of notional value very quickly.
Re the VAT and holding whether via co or personal, this is very situation specific so you need dedicated advice.
What I'm saying is in general unless the external driver of a developer coming along and paying a premium exists or you finding some angle to really get the yield up, the primary reason to own a property as a business is for peace of mind, that is no landlord but there is a balance between that feeling and how much you extra it costs for that feeling.
Commercial property around here (inside Western end of M25) is priced as if Rushi is still dishing out the free money but that's not the case, again your target could be different. The problem with asking a Surveyor is they can value it on a yield basis but if no reliable tenant can be found, that metric is redundant.
If I was doing it again, I'd apply these rules Assume you will be the only occupier, assume no capital growth (unless you hit lucky in the economic cycle), assume the risk of a short term dip in value and assume it's expensive to get in and expensive to get out.
Clearly the mechanics of rental and how it's paid is more an accounting function but if the thing stacks up from a peace of mind perspective, they may be enough to warrant the purchase.
The VAT on sale as others have said will need specialist advice around Option to Tax etc and assuming whatever entity you buy it through is VAT registered and registers for the OTT, should be reclaimable.
Some lenders won’t fund the VAT element and depending on when you purchase and how that lands with your VAT period could see you out of pocket for a few months (VAT on said purchase price not insubstantial).
Also need to note the stamp duty is payable on VAT inclusive price so factor that in.
If for no other reason I would tend to purchase through a separate trading entity so that your core business is protected. You probably don’t want creditors having a claim on your building should the worst happen to your main business.
Suggest you get some specialist advice from someone in this field as it’s a complex area overall. Also make sure you get a proper survey of the building from a chartered surveyor and get a handle on business rates and how building might be best subdivided to minimise rates liability.
Some lenders won’t fund the VAT element and depending on when you purchase and how that lands with your VAT period could see you out of pocket for a few months (VAT on said purchase price not insubstantial).
Also need to note the stamp duty is payable on VAT inclusive price so factor that in.
If for no other reason I would tend to purchase through a separate trading entity so that your core business is protected. You probably don’t want creditors having a claim on your building should the worst happen to your main business.
Suggest you get some specialist advice from someone in this field as it’s a complex area overall. Also make sure you get a proper survey of the building from a chartered surveyor and get a handle on business rates and how building might be best subdivided to minimise rates liability.
If the property is a warehouse/ distribution unit also consider that you will need change of use planning for car sales
https://www.adpltd.co.uk/latest/planning-permissio...
https://www.adpltd.co.uk/latest/planning-permissio...
You should look closely at the EPC rating, as the regulations mean that the minimum rating required to let a commercial property is being gradually tightened up over the next few years, and that might mean having to carry out major work in order to improve the rating and be able to legally let the property.
RC1807 said:
coyft said:
loafer123 said:
Buy it into your pension scheme, let it to your operating company.
This. He bought a commercial unit as an individual.
The Ltd company he's the MD/sole shareholder of pays rent to him as landlord.
But loafer & coyft are right - it is what he should effectively have done.
Jockman said:
RC1807 said:
coyft said:
loafer123 said:
Buy it into your pension scheme, let it to your operating company.
This. He bought a commercial unit as an individual.
The Ltd company he's the MD/sole shareholder of pays rent to him as landlord.
But loafer & coyft are right - it is what he should effectively have done.
Any changes to the lease will require signing off by the sipp administrator. Want to surrender your lease as your moving premises? No chance without another tenant in place. Want to extend the term and not alter the rent? Maybe not so easy..
It’s a good option but go in with your eyes open.
surveyor said:
There are risks to this which the financial advisors never mention.
Any changes to the lease will require signing off by the sipp administrator. Want to surrender your lease as your moving premises? No chance without another tenant in place. Want to extend the term and not alter the rent? Maybe not so easy..
It’s a good option but go in with your eyes open.
Don't get me wrong, this is a complicated area that you treat with care Any changes to the lease will require signing off by the sipp administrator. Want to surrender your lease as your moving premises? No chance without another tenant in place. Want to extend the term and not alter the rent? Maybe not so easy..
It’s a good option but go in with your eyes open.
Issues around Vat, pension liquidity and a rapid approach towards the LTA via growth and rental from a single property would be of equal concern to me.
surveyor said:
Jockman said:
RC1807 said:
coyft said:
loafer123 said:
Buy it into your pension scheme, let it to your operating company.
This. He bought a commercial unit as an individual.
The Ltd company he's the MD/sole shareholder of pays rent to him as landlord.
But loafer & coyft are right - it is what he should effectively have done.
Any changes to the lease will require signing off by the sipp administrator. Want to surrender your lease as your moving premises? No chance without another tenant in place. Want to extend the term and not alter the rent? Maybe not so easy..
It’s a good option but go in with your eyes open.
I own mine personally and let it to the LTD for the moment although a much smaller unit. We are desperately trying to find a bigger place to buy (I aint going back to rented) I think something in the range you are looking at we have set up a separate LTD ready to buy the building through. SIPP is a good idea in theory but as detailed in posts further up can be a lot less than ideal if you want to start doing stuff/selling it etc. DON'T have your building in the car LTD as there are sometimes times when you might need to liquidate and you don't want a building sat on the books stopping you having that nuclear option.
It will be interesting to see if values will soften. Certainly where we are there are the odd ones that crop up but tend to need a lot of capital outlay to fix them up which is hard if you are poor like me and would need all the cash for the deposit.
Banks are loving commercial though and I think as long as that continues and rents keep increasing the old traditionally hard to find capital appreciation could well be there. Our unit I would say has gone up 35% in the 3 years we have owned it. Spent only about 6 or 7k on it.
It's finding the buggers though if you are onto one and it makes financial sense go for it!
It will be interesting to see if values will soften. Certainly where we are there are the odd ones that crop up but tend to need a lot of capital outlay to fix them up which is hard if you are poor like me and would need all the cash for the deposit.
Banks are loving commercial though and I think as long as that continues and rents keep increasing the old traditionally hard to find capital appreciation could well be there. Our unit I would say has gone up 35% in the 3 years we have owned it. Spent only about 6 or 7k on it.
It's finding the buggers though if you are onto one and it makes financial sense go for it!
fridaypassion said:
ATV said:
Why not? What are the major drawback for you?
Why would I want to go back to rented when I can afford to buy? For example, instead of paying a million pounds to buy a car showroom outright, you could rent one for 50k a year and spend £950,000 buying some cars.
Yes, over simplistic, but it's a reason.
Or another way of looking at it is that you can take the mortgage deposit without it affecting your cashflow too much and have mortgage payments at half what the rent would be then you own it after 10 years?
I understand the other circumstance but we are well established and already own our own building so renting would be a completely unacceptable backwards step for me.
I understand the other circumstance but we are well established and already own our own building so renting would be a completely unacceptable backwards step for me.
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