Jonathan Rubins, director at Alternative Bridging Corporation
Not all property investment is the same and investment in commercial property has many differences to residential property investment. For example, the fortunes of commercial property values follow a different path to the residential market.
In the last year, average house prices have grown by nearly 10%, while commercial property prices have risen by less than 2% as retail and offices in particular have been impacted by multiple national lockdowns. At the same time, there are some elements of commercial property investment that make it more attraction for some investors.
For example, whereas a standard AST on a buy-to-let property is usually a year, commercial leases tend to last around five years – presenting greater stability over a longer term. The responsibilities for repairs and maintenance also differ between the two. Whereas commercial tenants are responsible for costs, it’s the landlords who bear the responsibility in residential lettings.
With the right property, investors in commercial property can earn a good yield on a full repairing lease, with tenants generally tied in for longer periods than a standard AST, and some there are some estimates that commercial properties can generate up to 50% more rental income than residential lease properties.
The strength of a lease is an important consideration when it comes to commercial property and letting to a profitable business on a robust lease is a great way of generating strong, sustainable returns. It’s often the case that a commercial property owner might choose to sell the property with existing tenants in place and this can present a ready-made income stream for another investor. Securing finance on a tenanted commercial property can sometimes prove challenging, but there are lenders that are able to consider this exact situation.
As a lender we’re happy to lend on tenanted commercial properties. We can also consider cross charges across background assets, either as a first or second charge. The maximum available LTV on commercial property tends to be 65% to 70% but, by taking this cross-charge approach we could essentially provide 100% funding on the purchase price if that is something you would need.
Commercial property can prove to be a good asset for investors, and a reliable tenant on a strong lease makes it an even more valuable asset. If you identify an opportunity like this with a tenant already in place, make the most of that opportunity and work with a lender than can consider tenanted properties.