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A scary but attractive opportunity has come up to purchase a mixed use property. This is a new area for me so I feel I don't know what I don't know at the moment...I already have 3 residential BTL's bought and let within a Ltd Co. These are managed as I have a day job.
The whole building is for sale and contains flats on leases, freehold flats, a commercial unit and some garages. I have flats nearby so familiar with the area. The commercial and garages are already let.
I'm trying to work out if the deal stacks up and is even worth considering as a relatively new landlord.
I understand stamp duty is not payable on mixed use up to £150k. Other costs I guess would be; buildings insurance, maintenance of the communal areas and grounds.
I also understand that a mortgage wouldn't be straightforward but have a specialist broker I can ask.
Details are sketchy at the moment and the legal stuff is on the way but I just wondered if anyone had taken on this sort of property before and had any advice?
Am i right in thinking if the shop was empty I would be paying the business rates after 3 months?
you would probably need a Management Company to manage the block, the individual leases should tell you each leaseholders obligation regarding their contributions. The shop would have to also contribute. Check the shops business rate value with the voa, if it’s under a certain amount and is classed as the ‘only’ business. The business rates could be zero.
I'm in a similar position, albeit on a smaller scale. This sounds a very interesting opportunity.
Is this a purpose built block or has it been converted? If its converted is it subject to S257 HMO legislation?
As well as the residential units, what are the lease/tenancy agreements for the commercial unit and the garages? What are your obligations as landlord? Also, what are your obligations as the building freeholder, is there anything outstanding?
Is your current property manager/letting agent familiar with this type of property?
Business rate relief may well be available in case of a void, it depends on the rateable value. Stamp Duty will be at commercial rates and there is no additional 3%.
Hi Gary, originally it was all commercial on the ground and flats above. Downstairs units have been converted to resi except for one. The letting agent I use does manage commercial as well so I think they can handle it.
I am looking into the lease details now - thanks for your input.
And do you have a solicitor?
I bought something similar last year and am in the process of buying a second that sounds similar. Difference is that mine were/are totally empty buildings so significant work has been needed to get them lettable. The one that i already own had 1 large retail unit, 1 large flat and workshops to the rear. I have converted the one flat into 3 by going to the loft space. I would say an important thing to consider is utilities - how many connections come into the building at the moment, on how many meters and how is it separated? My plan is to keep this building for 5-10 years as the yields are so good but, I also wanted to plan for a future sale by the splitting the title deeds an selling up. This has meant that i have had new water and electric connections installed for each flat - and the cost of that is huge. Also CIL has hit me hard. The end result though is high yields and a really good increase in capital value - i don't regret my switch from resi to mixed use so far...
Why did you have to pay CIL? I only understand the basics but I believed this was only applied to larger developments?
Because i increased the floorspace by going into the loft - created an extra 50m2. Think it may be different for different councils?
What type of area is it? Prime, secondary or tertiary these translating roughly to town centre/best location, high steet, off the high street going into more residential than commercial. This will impact the type of tenant you'll be able to get for the commercial and ultimately the risk and yield.
Prime will give lowest yield but least risk I.e capital value is high but tenant covenant is strong meaning good business / sound financial record. Secondary to tertiary will give best yield as they are chraper to buy but they come with a greater risk of voids.
With business rates you have the first 3 months concession unless it has already been empty 3 months before you buy in which case you pay business rates from day one! Business rate relief (no rates) only applies to a premises where there is a business being run not an empty one...
Overall, quite different considerations to resi but can be a great investment.
All opinion and advice given should not be relied upon and the usual due diligence should be undertaken in all cases.