Buy To Let Commercial Property
Buy To Let Commercial Properties can be attractive investments for property owners and landlords as part of a broader diverse property portfolio or a strategy.
Are you looking to get into the buy-to-let market and find potential property purchases with excellent rental yields? That’s something we can help with.
Start your property portfolio today!
What Is Buy To Let Commercial Property?
Commercial Buy To Lets are rented properties used solely for business purposes. This includes offices, restaurants, medical centres, shops and industrial warehouses.
Commercial property rents tend to be higher than residential properties, which can be very enticing investment opportunities. But, securing a mortgage for funding for commercial lets can be more problematic as it doesn’t just consider the property’s valuation.
To receive funding for commercial properties, the mortgage providers will also consider the potential rental value and the value of the business that rents the space.
This is because there is a higher risk involved due to tenant rent, the profitability of the business and their potential to generate rent.
What Are The Common Features Of Buy To Let Commercial Property?
The commercial buy-to-let market is a broad term stretching across every type of buy-to-let commercial premises.
But, the market can be split into industrial units, large-scale commercial developments, shopping centres, multi-storey office buildings, corner shops, restaurants, garages and smaller business premises.
The smaller-scale commercial lets are the most common for the average commercial buy-to-let landlord.
Is Buy-To-Let Commercial Property Profitable?
Commercial Buy To Let Properties are usually more profitable than residential Buy To Let properties as landlords can put rent higher due to the risk involved.
Not only this, but commercial lets are often part of multiple units where a building has been renovated to suit numerous businesses with various tenants. The companies have a longer lifespan than residential tenants as they grow within the units.
In the United Kingdom, most commercial buy-to-let properties can expect a healthy 7%+ net yield.
However, there are several costs that you should be aware of when setting up and running a commercial buy to lets:
- The initial renovation costs included the installation of unit division walls, bathrooms, health and safety equipment, locks, and security equipment.
- Mortgage repayments and insurance.
- Council tax and utility bills.
- Repairs & maintenance.
- Rental voids.
Who Are The Best Tenants For BTL Commercial Property?
The best tenants for Buy to let commercial property investments will depend on the type of property that is being rented out.
However, a general strategy for many landlords is to choose Small and Medium-sized enterprises (SMEs) tenants as these companies are well established and have room to grow within the units.
Generally, the most desirable types of companies for BTL commercial property are:
- National or international retail chains.
- Professional service providers (solicitors & accountants).
- Restaurants and cafes.
- Medical, fintech & financial services.
- Fitness centres & gyms.
- Educational institutions.
- Technology startups.
- Warehouse and industrial tenants.
- Government organisations.
Companies with a strong track record and stable financials are desirable BTL commercial property tenants as they provide a reliable income stream and are more likely to honour lease agreements.
Alternatively, some BTL commercial property landlords like to have startup businesses within their property, as these companies may offer a higher reward due to the longer lease life.
Why BTL Commercial Lets May Be A Good Investment For you
As with any property investment, a particular aspect of risk is involved, so weighing up the advantages and disadvantages of Buy To Let Commercial property is essential.
What Are The Advantages Of Commercial Lets?
Due to the higher rental yields, BTL commercial properties have the potential for greater returns on investment than residential properties, which can be attractive for investors seeking increased cash flow and profitability.
Commercial leases also tend to have longer durations than residential leases, typically ranging from 3 to 10 years or more. Longer leases help provide further stability and reduce vacancy risk, minimising the potential for income gaps.
Investing in commercial properties allows you to diversify your investment portfolio as commercial buys let markets have different dynamics than residential properties, meaning they will respond differently in various economic conditions.
Diversification helps spread risk and can provide stability to your overall investment strategy.
Well-located and well-maintained commercial properties can experience capital appreciation over the long term. Economic growth, urban development and infrastructure improvements can all contribute to an increase in property value.
What Are The Disadvantages Of Commercial Lets?
Commercial buy-to-let properties typically require a more significant upfront investment than residential properties. Commercial property purchases involve substantial legal fees, renovation expenses, and mortgage repayments.
You may also find it harder to acquire a specialist commercial buy-to-let mortgage (but more on that later).
The buy-to-let commercial property market can be subject to fluctuations and economic cycles, like changes in local or national economic conditions, shifts in business trends or the arrival of new competitors in the area, impacting the demand for commercial space and rental rates.
Commercial properties may experience longer void periods than residential properties because finding suitable tenants for commercial spaces can take longer due to specific requirements, market conditions and economic factors. Extended vacancies can impact your rental income and cash flow.
Start your property portfolio today!
What Are The Different Types Of Buy To Let Commercials Properties?
There are eight main types of commercial buy-to-lets:
BTL commercial lets leased for healthcare purposes include medical practices, dentists, physiotherapy centres, chiropractic practices and other healthcare-related establishments. These buy-to-let investments often require specific requirements, such as examination rooms, waiting areas and secure storage facilities.
Buy-to-let land developments focus on developing land or constructing new properties to rent them out. Instead of purchasing an existing property, investors acquire land to develop it into rental properties.
Types Of Commercial Lets Questions
Can I Use Buy To Let On Commercial Property?
Yes, you can use a buy-to-let (BTL) strategy for commercial properties, as this refers to purchasing a property to rent it out to tenants, thereby generating rental income and potential capital appreciation.
Can You Sub Let A Commercial Property?
You can sublet a commercial property if it has been allowed on the tenancy agreement with the landlord. The tenant agreement should outline whether subletting is permitted and if there are any restrictions or requirements associated with it.
Is A Buy To Let Property Classed As A Commercial Property?
No, a standard buy-to-let property that rents out to households is a residential property. If the buy-to-let is being rented by a landlord to a business or company, then it is considered a commercial property.
What Should You Consider Before Investing In Buy-To-Let Commercial Property?
1. Your Income
One of the most significant differences between residential and commercial buy-to-let investments is how you make income.
Residential property tends to be more oriented around capital appreciation and rising house values, with income from rents acting as a cushion.
Whereas commercial property tends to be orientated towards earning income from commercial tenants with the chance of capital appreciation in the future. Most commercial properties won’t increase in capital appreciation, but the land they are on will.
2. Understanding Valuations And Mortgages
Commercial buy-to-let property valuations are tenant focused instead of property focused. The amount of rent being paid is tied to the property value, but commercial landlords also need to consider the financial strength and length of the tenant’s lease.
If the tenant is a blue chip tenant or is reliable and a valuable company within their industry, and they have a long-term lease, then the property’s valuation will increase.
If the vacant property unit has a lower-quality tenant, then the lease sale will be significantly less than if there was a tenant, as there is considerably less income.
Low income from a vacant or low-quality tenanted property represents a high risk to mortgage providers, who would prefer to lend to a landlord with tenants lined up.
The mortgage provider will calculate the risk of the landlord being unable to afford the mortgage repayments; if the tenant can’t pay, how will the landlord?
3. Tenant Leases
Unlike residential buy-to-let 6-12 month Assured Shorthold or Periodic Tenancies, commercial leases will last 3-10 years or more.
Companies will invest substantial funds into getting a unit to the spec they need to function unless they grow so much that they need to upsize.
Most commercial buy-to-let leases will come with a break clause, which allows the lease to be called off by either party at pre-defined stages. The break clauses will enable the landlord or tenant to quickly move or renovate if the needs of their business change.
The longer the lease of a property, the greater the value and the more you’ll pay for that building.
4. Running Costs
Most commercial buy-to-let landlords aren’t responsible for the upkeep of the building. Instead, it’s down to the tenants and any property managers.
The landlord will be responsible for the overall insurance of the property, but the tenant will ensure their units and cover repairs.
Once commercial tenants leave, the unit will be restored to its original condition, and the tenant will need to pay the landlord for any damage, known as dilapidations.
One of the most significant downsides to commercial property is the business rates; if the landlord has a void, they will be responsible for paying the void, which may take months to fill as the landlord looks for the ideal tenant.
The rates must be paid after a 6-12 week grace period which varies depending on your local council. The business rates are calculated based on the rentable value.
5. How Easy Is It To Find A Property?
Finding a property to buy and convert a building into a commercial let or buy an existing one has never been easier!
At The Property Sourcing Company, we pride ourselves on being able to match you with tailored property straight to your inbox.
All you have to do is join our database, which is entirely free, and we will contact you to discuss your requirements. Then if we have an existing property that matches your described criteria, we will send it straight to you.
If you don’t match immediately, don’t worry! With hundreds of properties being added to our database annually, opportunities are just around the corner!
Our service doesn’t just stop there; once you have matched with the property, we will help you negotiate any deals and help you at every step.
Start your property portfolio today!
6. Taxes And Fees
Taxes and fees for commercial buy-to-let properties can be far higher than residential BTL properties.
Commercial landlords will face the usual mortgage charges, conveyancing fees, and surveyor costs but must also pay for new lease agreements from a solicitor every time they get a new tenant.
Landlords may also face VAT at pure commercial finance, but if you are unsure, we advise you to seek guidance from a financial adviser.
Commercial property, however, can be used in a pension through a SIPP (Self Invested Personal Pension) which can be used to buy and retain commercial property. Any income generated from the properties can be added to your pension pot and allows you to enjoy tax advantages
Do You Need A Licence To Buy To Let Commercial Properties?
In the United Kingdom, no specific licence is required for owning or operating a buy-to-let commercial property.
However, in the UK, you will need a commercial lease tenancy agreement, a legal agreement between a landlord and tenant for the rental of a commercial property.
The tenancy agreement or lease sets out the terms and conditions under which the tenant occupies and uses the property for business purposes.
There are also a few regulations that may apply depending on the type of commercial property and its intended use:
Before purchasing or developing a commercial BTL property, you may need to obtain planning permission from the local council, which will ensure that the property is being used under local planning regulations and guidelines.
Some local councils in the UK have implemented selective licensing schemes requiring landlords to obtain a licence for specific rental properties within designated areas. Although this applies more to residential properties, there are some commercial exceptions.
Depending on the nature of the commercial buy-to-let, specific environmental and health regulations may need to be followed. If you are unsure, we recommend seeking advice, as failing to meet regulations can result in hefty fines.
Commercial lets must comply with fire safety regulations to ensure the safety of occupants and visitors. Compliance with the Regulatory Reform (Fire Safety) Order 2005 is essential, including conducting fire risk assessments and implementing appropriate safety measures.
What Is A Commercial Lease Tenancy Agreement?
A commercial lease tenancy agreement, business lease or commercial lease is when a property owner rents out space of a commercial property to another company.
The tenancy agreement is a legally binding contract and gives the commercial tenant the right to use the specific property for a business or commercial activity for some time in exchange for income.
The commercial lease will outline the rights and responsibilities of both the landlord and tenant during the lease term:
The commercial tenancy agreement specifies the duration of the tenancy, including the start and end dates. Commercial BTL leases are typically longer than residential leases, ranging from three to ten years.
The commercial lease outlines the amount of rent to be paid by the tenant and the frequency of payments. It may also include provisions for rent increases, service charges, insurance contributions and any other financial obligations of the tenant.
The lease tenancy agreement sets out the property’s repairs and maintenance responsibilities. It may specify which party, the landlord or the tenant is responsible for certain repairs, alterations or improvements to the property.
The lease defines the tenant’s permitted use of the commercial BTL property. It may restrict the use to specific activities or purposes such as retail, office, or industrial use and may include provisions regarding any restrictions or limitations on the tenant’s operations.
The commercial tenancy agreement sets out the obligations of the BTL landlord and the tenant. This includes the responsibilities for complying with laws and regulations, insurance requirements, access to the property and any other contractual obligations.
The lease specifies the conditions and procedures for terminating the BTL tenancy, including notice periods, break clauses, and potential penalties. It may also outline the lease renewal or extension process at the end of the initial term.
The tenancy agreement may include provisions for resolving landlord and tenant disputes, such as arbitration or mediation. It also outlines the rights and remedies available to both parties in case of breaches of the lease terms.
What Is A Commercial Buy-To-Let Mortgage?
Commercial BTL mortgages, Commercial Landlord Mortgages, Business Buy To Let Mortgages and Commercial Investment Mortgages are loans investors and landlords use to purchase a property which is then used to let one or more units to businesses.
Standard BTL mortgages aren’t insufficient to cover commercial buildings because traditional buy-to-let mortgages are created for residential, not commercial use.
What Type Of Mortgage Is Used For Mixed-Use Property?
Mixed-use properties that are buy-to-let involve commercial and residential premises and therefore cannot receive a usual commercial or residential buy-to-let mortgage.
Instead, it would help if you got a semi-commercial mortgage for a mixed-use buy-to-let property.
How Do You Get A Commercial Buy-To-Let Mortgage?
Commercial mortgages can often have a complex application process, so selecting the correct mortgage for you as an investor is crucial.
Commercial landlords will need specialist advice because commercial mortgages are considered a specialist type of finance, and they must calculate a budget.
When finding a mortgage provider for a commercial buy-to-let mortgage, a landlord must find a suitable one. Most mortgage providers will not lend commercial mortgages, so finding one using commercial properties is essential.
Depending on the mortgage provider, they will have different mortgage criteria that the landlord will need to meet.
Commercial mortgage providers will ensure that the property will generate enough rent to form an income and pay off mortgage repayments because commercial buy-to-let stress tests can be as high as 145%.
If the landlord has a commercial tenant lined up or is already in situ leasing the property, this can improve the chances of getting approved for a mortgage.
However, it’s important to note that you can get a commercial buy-to-let mortgage on an empty property.
When the landlord applies for a mortgage, they will undergo personal checks, which involve credit checks, personal history, affordability and existing mortgages or loans.
Commercial mortgage providers will request a surveyor to visit the property before offering the mortgage. But, it’s essential to check with the mortgage provider as all the assessments will vary.
What Are The Commercial Buy To Let Mortgage Rates And Fees?
The commercial buy-to-let mortgage rates will be based on factors like your LTV ratio, the mortgage provider you are applying with, your credit history, your commercial tenant, and your experience or affordability.
Usually, a commercial landlord will need a 25-35% deposit for commercial investment, but this will depend on the rates offered. If you have a deposit of 40% or more, you can access better commercial buy-to-let mortgage deals.
Commercial mortgage rates are far higher than residential mortgage rates because there are far more residential mortgage lenders than commercial providers, and commercial lending is at higher risk than the residential mortgage market.
The mortgage fees you face will vary depending on the scope of your mortgage portfolio.
What Alternatives To Commercial BTL's Are There?
Residential Buy To Lets
These tend to be normal residential houses, 2 to 3 bedrooms terrace, semi-detached, detached or flats. They are houses that are suitable for the average renter and are sometimes known as vanilla buy to let properties.
A House of Multiple Occupancy (HMO) is a rented property occupied by at least three people who are not from one household or five or more people, forming two or more households.
This type of Buy To Let is a freehold block which offers multiple, separate or independent residential units. This can be a variety of different types of property such as blocks of flats or houses converted into flats.
This is very similar to HMO’s and even are often referred to as non-licensable HMO’s. They have many characteristics of a typical HMO but don’t require the licence, but they may still require planning permission from your local authority.
as the name describes, this is a commercial premises and it is when you let the property out to one or more businesses. It’s often referred to as Commercial Landlord Mortgage, Business Buy To Let Mortage or Commercial Investment Mortage.
Why Invest With Us?
We’ll find you the best deal, with the highest yield possible, tailored to your requirements.
We have years of experience in this industry and are part of a group of companies that regularly purchase properties for below market value, in which we can pass the discount on to yourself. We’ll look at every property we purchase, or even get an enquiry for, to determine if it will offer a high yield. If the answer is yes, we can pass the opportunity on to our investors.
We make it easy, doing all the research for you & finding the perfect property to slot into your portfolio.
Start your property portfolio today!
You might be wondering where we are able to offer these fantastic Buy To Let opportunities with great yields, and the answer is pretty much anywhere in England and Wales. We’ve detailed below some of the main areas that we regularly buy properties in, just to give you an idea.
Buy To Let Investment Examples
When we say that we can source properties that offer a high yield, you don’t just have to take our word for it. Below you will find some of the properties we’ve recently sold to our investor database and their example yields: