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Investors back commercial buy to lets at auction

06.06.2017 Site Manager

Since April 2016, buy to let investors have had to adjust their priorities. Activity this year suggests that landlords are still buying, but the attention has switched to commercial lots, which tend to provide better yields. Mortgage brokers and lenders are also becoming more engaged with the sector, which means there are more opportunities to become a landlord at a more affordable price. When coupled with buying at auction, which is generally a quicker and more transparent method, the prospect of owning a commercial buy to let becomes a desirable prospect.

Reasons for choosing commercial

Commercial landlords have gained a greater share of the buy to let market since 2016, with industrial, retail and office spaces all performing well. According to the RICS UK Commercial Property Market Survey, investor demand for commercial property rose by 18% during Q1 this year.

There are various reasons for this strong demand. Tax changes, which were enforced last year, have hit private landlords more than commercial landlords and those who have registered their buy to let portfolio as a private limited company. However, the switch to commercial assets began even earlier. According to the National Landlords Association, commercial loan applications rose from 10% in July 2015 to 19% by the end of 2016.

Part of this reason is that investors are looking to diversify their assets as a way to spread risk across investments. Another is the practicality of commercial investment. Long leases and high rents ensure that you’re in receipt of a sustainable income. Commercial properties are also a lot less susceptible to market shocks, which means they are far more likely to hold their value over a longer period.

Types of commercial lot

Commercial auction lots provide greater flexibility for investors. In the auction world, a great array of property types are suitable for auction, which means that we attract a wide range of commercial investments into our auction room, from retail units and garages to offices and industrial sites.

Lots can be semi-commercial, which refers to a business in one part of the building and a residence in the other, or completely allocated for commercial use. These lots require a commercial mortgage which are calculated by the value of the property, rental income and the value of the business inside the property. However, commercial properties can be bought either vacant, with short leases, sold with tenants residing in the property, or with leases which require renewal.

Due to the comprehensive range on offer, it is advisable to look at commercial trends to assess long-term viability. We always advise first-time investors to do this at a local level as it will enable you to compare prices easier, ensuring that you’re more likely to buy at market value.

Factors to consider include tenant demand in the area and rental values, the availability of mortgages in the market, supply and demand in the sector that year and how values have fared during the past 12 months. A local agent or auctioneer will be able to tell you more about market trends during your decision process.

 

Benefits of buying commercial at auction

Our figures show, as part of the Auction House group, that the percentage of commercial lots sold at auction has outperformed the residential average across the country – by a rate of 2.2% from February to April.

An auction is an ideal place to find a bargain on the market, sometimes in a market sector which you may not have considered before. Once you’ve bid on a property and the gavel lands the property is yours, which means you won’t fall foul of being gazumped or being let down by a collapsed property chain.

There’s no quicker way to buy a property, either commercial or residential. The completion of a purchase, from the exchange of contracts inside the auction room to walking up the driveway with a set of keys, will be sealed within 28 days.

We have also pioneered an online auction platform, which works much like eBay in the way that the auction can start and end when the seller decides, and a reserve can be set like any traditional ballroom auction. Contracts are exchanged at the fall of the virtual gavel, with the usual 10% deposit paid.

For more information and advice please contact the Auction House Sussex team. Alternatively, note our next auction date on June 29 into your calendar to experience the auction room for yourself.