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After 2 years of considering my options and arranging to sell a tenanted inherited property held in trust I'm finally in a position to take action. I currently have no tenants and no lodgers. I complete on the sale of the property on 25th January. I end my employment contract on 31st January.
I anticipated I would take a month or two to get all my ducks in a row, and have a bit of a rest. I intend to buy in a company format, 1 mixed use and 1 serviced/holiday accommodation. I'll retain my PPR but the mixed use will become my main home to take advantage of the benefits of sharing. Not a conventional approach, but it suits me.
A mixed use property that I casually viewed around a year ago has again come up for sale in an auction. Its not a perfect fit for my criteria, I doubt I would ever find that, but it ticked more boxes than any other I have viewed and still does. The property is around 400m2, roughly 50% residential, 25% commercial and 25% ancillary storage (vacant). It's currently yielding 12%, but even as a resident landlord I expect in excess of 10%. The value is around 60% of my available funds.
This will be a decision of the heart as much as the head. I understand the risks, I can potentially overcome the few boxes that aren't ticked and most importantly, I like the property, the street and the town. I will have around a week to make any arrangements prior to the auction.
Nearly all of this is new to me in practice, although I understand it in theory. Any suggestions on what to prioritise would be greatly appreciated.
The deal of a lifetime comes around once per week.
No need to rush into this one.
I'd take a few months off first, leaving employment is a huge thing to get used to.
After a few months of gathering your thoughts, perhaps then start looking at options.
After consideration, I thought maybe I would be better off chatting to a local agent and paying them to manage it initially. Two interesting points came out of that conversation. The yield is very good now, but is based on values from 10 years ago. The commercial unit currently pays £12k, but I should realistically expect £6k-£8k when the lease expires in 18 months. It would however be unlettable, unless I could get the VOA to drop the RV from £14k to something more attractive, which is very unlikely. Change of use or development of the 106m2 ancillary storage is also going to be very difficult, if at all possible.
Another lesson learned!
I spoke with the agent managing the residential unit today and interestingly got the opposite view that it was a very good area to invest, and although he only dealt with residential sales and lettings, he was aware of other redevelopments in that area that had succeeded in getting permission.
Did you purchase the property?
Have you had sight of the commercial lease?
You need to find out whether it is opted in or out of the landlord and tenant act 1954 as this will dictate what happens in 18 months time. Also, you will have the option to put in a dilapidation claim to get the outgoing tenant to put the property back into a similar condition as they took it, although this depends on how through the initial schedule of condition was if one even exists. Often this just means the tenant will pay you a sum of money to cover the works.
You say the lease will expire in 18 months, has the current tenant indicated that they will be renewing? How big is the unit? Splitting the unit into two will reduce the business rates payable and likely allow them to claim business rates relief.
Why do you think the change of use would be difficult? What use class if the ancillary storage?
Happy to help if you want to bounce ideas.
I haven't purchased the property.
I have the commercial lease and the AST. The commercial tenant has no contractual right to renew the lease. The commercial unit was let as an empty shell on a FRI lease. Neither tenant has given notice. Commercial tenant in place since June 2010 on 10 year lease. Residential tenant in place since 2014 and current 12 month AST until April 2019. Building refurbished in 2009/10 including new roof. Current landlords owned since March 2015, paying £154k. Auctioned April and May 2018 at a guide of £160k. Current Auction guide £145k. Commercial rent £12k. Residential rent £6.6k. Rateable value £11.5k - legal pack (Showing £14k plus 1.5k online search)
The commercial tenant is a national chain. The residential tenant is managed by the local branch of a national agency. The landlords are not local.
I don't have usage class for the vacant unit other than 'vacant ancillary storage' and 'no rates charged'
The property has approximately 90m2 basement, 20m2 ground floor storage unit, 70m2 A1 retail unit, 130m2 residential maisonette. All units, except the retail, are accessed from the rear with private lane access.
The local agent felt any development or change of use was not suitable. This may have been a personal and not professional opinion. She also felt the RV was prohibitive to future tenants. Having checked similar neighbouring properties they appear to be around £10k.
I viewed a similarly priced property, £148k, around 1 mile away. It has a 33m2 A3 unit and 50m2 residential unit. Rental income is £6k commercial plus £5k residential. RV is £3.3k.
You have a great plan ahead of you, and you seem to know exactly what you want!
There may be nothing that will ever tick all of your boxes, but it seems like you really like this property and it may be worth it even with out all of the boxes being ticked for you.
I hope you enjoy your time off and get everything sorted. Good luck with your investments!