For most people, any thoughts about property investment begin and end at home ownership. While rising asking prices and more stringent mortgage requirements have held many younger people from finding a footing on the property ladder, the property market in the UK is still an incredibly healthy one. From long-established landlords looking to add another dwelling to an expanding property portfolio, to foreign investors scouting for big-ticket premises with dynamic development potential, there’s plenty of money out there ready and waiting to be channelled into the right property.
While the residential market has historically been the go-to for investors, the booming health of the commercial property market has meant more and more people are seriously looking to these alternative premises when searching for lucrative property investments. If you’re one from the latter camp looking to broaden their investment horizons with commercial property, it’s worth bearing in mind this slice of the market and the residential can be wholly unique situations. There are a distinct set of factors to consider when appraising either type of property, with some of these points not even reserved to the bricks and mortar of the buildings themselves.
Below, you’ll find a handy guide on meandering the residential and commercial property markets, with essential tips and insights on how to secure a good deal and what to avoid.
Location is everything
It’s a staple saying in the property market, but when it comes to weighing up the pros and cons of residential and commercial properties against each other as investment opportunities, location really is a chief concern. First off, you need to ascertain the reason for this particular property investment as that will help determine the importance of location. Are you looking for a residential property? If you’re merely adding another semi-detached or flat to a heaving portfolio of properties, location isn’t really a huge concern. That being said, if all of your existing properties are located within the same town or city, it doesn’t make a whole lot of sense to then invest in a property located hundreds of miles away as this will spread property management services rather thin if you’re responsible for those yourself. Alternatively, if you have a third-party handle this for your existing properties within a shared region, chances are the same agency isn’t going to go a significant distance out of their way in order to bring a single property under their wing. In such an instance, you’d likely find yourself having to fork out for services and facilities from fresh in your new territory, with none of the discounts you might be experiencing from passing so much custom to providers in your home base.
That being said there are some exceptions to the rule. If you’re looking to bring a holiday rental or prestige letting into your portfolio, far-flung destinations throughout the UK and their associated extra fees won’t come as any surprise to you. Also, if you’re keen to capitalise on a booming property market in another town or city, the initial distance between your usual base and your new investment can merely be seen as a teething problem until you develop your portfolio in this new area.
Proximity of commercial property investments
Usually, with commercial properties, investors don’t need to worry too much about being located a short distance away. Depending on your intentions for the property, you can usually maintain an arms-length approach to management, even if it involves significant remodelling and/or refitting shortly after purchase. Property managers in the commercial sector are more specialist than residential ones, with niche expertise that should provide you with peace of mind your purchase is well looked after, even if you are situated a considerable distance away for long stretches of time.
Investment potential of residential properties
Location plays a further role in deciding whether or not to opt for a residential property over a commercial premises. House and flat prices can be significantly influenced by the economic health of the area, so some preliminary research to assess the employment statistics of the area, including average wages, is a good idea. If you’re looking to flip a property shortly after taking ownership of it yourself, you may wish to delve deeper into the economic growth statistics of said area to assess the availability of finance options, as this will give you a vague idea of how successful mortgage applicants or rather, potential buyers, might be in securing finance.
Residential properties always appear an enticing investment prospect to buyers, with a relatively straightforward process in acquiring them. However, it’s also worth bearing in mind that the process itself can be quite time-consuming. If you’re also looking to refit or refurbish said premises with a hands-on presence, it might not be cost-effective to invest in such a way. Additionally, you should always reassess the latest situation with regulation changes and policy updates, with fees and taxes regularly changing. The last thing you want is to project potential returns on investment with incorrect metrics.
Commercial property returns
When it comes to assessing the attractiveness of a commercial property investment, everything ultimately boils down to whether or not you have the funding available. The commercial market tends to be a more professional enterprise overall, with sophisticated management and funding options for those looking to invest. Although smaller properties in the commercial sector don’t normally call for it, larger premises have a range of financing options that investors may be eligible for. These include conventional mortgages, bridge loan finance, collective investment schemes and trusts.
One of the hardest things about investing in the commercial property market is assessing the genuine value of a property. Although the sector is very transparent in some ways, you won’t be able to weigh up one asking price to another and scan key features of a listing as you would with a conventional residency. As such, you’ll need to have a keen insight into the particular type of premises you’re looking to buy. It’s not just the bare bones and basic amenities of the place that needs to be taken into account and compared against similar superficial details. Instead, areas of application and, even specific workflows might need to be worked into the equation before arriving at a guide value for your reference.
Making the final decision between the two
Individual circumstances will of course always determine whether or not you embark upon a specific investment, but some general rules can help save you from losing a fortune on poor judgement. If you’re leaning toward residential properties, just bear in mind that they can often take up a lot more of your time than commercial properties. You’ve some ongoing costs to consider, as well as the potential of repairs and replacement items for your tenants, while non-occupancy periods are always a costly risk for landlords.
Commercial properties can, in fact, be a much smarter choice of investment. However, ensuring this always boils down to whether or not you’ve made the right call in regards to the suitability of the property in the first place. If you’ve not understood the needs of application or judged it against a too dissimilar property when calculating valuations, further losses aplenty await you later on. Whereas residential property values can be relatively simple to ascertain, calculating commercial property value is a minefield of mistakes-in-the-making. Even if you're in the slightest amount of doubt, it's advised you get in touch with a specialist in the commercial sector who can advise and guide with relevant insights.
Speak to the experts for advice
Looking to invest in property, but torn between residential and commercial options? Speak to the Prideview today. We’ll discuss your individual requirements with you in detail, exploring options throughout the commercial sector and residential market until we help you find the ideal fit for your investment funds. Get in touch with us here. We look forward to speaking to you and helping you make the right choice when it comes to investing.