Many landlords are switching from buy to let residential property to investing in commercial property. Leading lawyers warn that commercial property investments need a different business model from residential property.
Rufus Ballaster and Chris Picardo, city lawyers at Carter Lemon Camerons LLP, say that it is a good idea for landlords who find the buy to let market difficult, to consider investing in commercial property.
Because of increases in stamp duty, tax relief cuts and new stricter commercial mortgage affordability rules, many landlords are looking to alternatives to the buy to let residential market.
Rufus Ballaster said:
“The nature of investment and conveyancing is similar and an experienced investor in residential stock should easily be able to consider the alternative of building a commercial portfolio.”
The city lawyers say that landlords should first understand how income from and capital growth in commercial property is taxed and this should inform their calculations into how much profit they could expect from commercial property.
A major difference between residential and commercial property is that in residential property the cost of repairs is the responsibility of the landlord, but commercial property repairs are usually paid for by the tenant.
Like any investment, commercial property is not without risk. If the UK economy decreases then demand for commercial property falls, and landlords could be faced with the costs of an empty building.
Although yields on commercial property can be high, the lawyers urge potential investors to undertake due diligence on potential investments before committing their money.