Investors see semi-commercial properties as good value for money – Brightstar

by: Tony Carter, commercial finance specialist at Brightstar Financial
  • 30/10/2018
  • 0
Investors see semi-commercial properties as good value for money – Brightstar
In recent months we have seen an increase in demand for funding to invest in semi-commercial property.

 

In the current market, with property transactions quite flat, there are some reasonable prices available on semi-commercial and investors are seeing it as good value for money.

There has been an increase in demand from traditional buy-to-let landlords, who are becoming more sophisticated in the search for better yields following tax and regulatory changes in the sector.

We’re also receiving a lot of enquiries from clients who currently run a trading business and see an opportunity to buy a semi-commercial property for investment, adding value to the balance sheet of the business.

The most popular properties tend to be a 50/50 split between residential and commercial, often with a commercial tenant on the ground floor with two residential flats above.

 

Long-term income and stability

Landlords are drawn to semi-commercial properties because of the potential to earn better yields in a tax efficient way, but also because a semi-commercial investment can help to diversify a portfolio and make it more robust.

Whereas there can be a high turnover of tenants on residential properties, a commercial lease can last for 10 years, providing guaranteed income for a decade.

Lenders are therefore comfortable with commercial tenants as they provide stability and income over a long period.

 

Lease length and strength

The strength of the lease is very important.

To potentially achieve the best market rates lenders will ideally want a longer lease, with several years still remaining, made to an established business with a strong track record.

There are however, lending options for shorter leases and on these cases, lenders will look a bit deeper at the covenant and the business. They’ll want to know who the tenant is, how long the tenant has been in the property, and whether the business has a stable outlook.

Some lenders can have preferences to particular sectors for commercial tenants and will consider the wider trading environment for the business.

For example, the retail sector is currently suffering with uncertainty ahead of Brexit and competition from online retailers, so some lenders may carry out additional due diligence on transactions that involve an element of retail.

 

Plenty of options

There are plenty of options for clients who want to borrow on semi-commercial property, from first-time investors, to cash out scenarios where landlords refinance existing properties to fund further investment projects.

There are lenders out there able to help with most scenarios, but with this opportunity comes complexity.

With so much choice available, it is important to work with a specialist that understands the appetite of different lenders and can structure the most appropriate deal for your client.

 

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