What Is An Investment Commercial Property
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- Investing, Commercial Property, Commercial vs Residential
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Are you looking to find out more about what investment commercial property is? Kent Property Witness offer RICS expert witness surveyor services for Tonbridge and Kent. Find out more about the difference between commercial and residential property and how to buy commercial property.
What is the difference between commercial and residential Property?
When it comes to the difference between commercial and residential real estate, there are many key differences that can help you to tell them apart. Firstly, the profit potential for commercial properties is obviously much higher. A business will be operating in that space and will hopefully be profitable.
Whereas, of course, the profit potential for a residential property will be lower. Commercial properties tend to have a much longer lease length than residential properties. Not only this, but commercial properties will have far more paperwork and administration than residential spaces.
Tenants for commercial properties are likely to treat the property well as it will be their place of work. Residential properties can be damaged by the end of their lease or can just generally be a nuisance. So this is important to keep in mind. Maintenance for commercial properties is usually outsourced, meaning the tenant themselves will usually pay.
With commercial properties, the landlord is usually the one fixing any issues, meaning it comes out of their pocket. Along with everything just mentioned, there are many small differences.
Payment collections are usually done up to three months in advance with a commercial property, but with residential spaces, it is done about one month in advance.
Finally, landlords are usually only contacted during business hours with commercial spaces, but with residential properties, it can happen at any time.
How to value commercial property
The size and location of commercial property are how it is eventually valued. Every high street around the country has a standard cost of pound post square foot which they use to figure out a property's worth. For example, in the area of Whitstable, the pound per square foot varies from between £32 to £36.
In order to work out the value of a commercial property, it is first split into zones. The first 20ft is at the highest price point. For example, £32 to £36. This is zone A, and it will be the space that is closest to where customers will enter. Zone B is the next 20ft and is half the price of Zone A. Zone C is the remaining space after the first two zones and is once again half the price.
Areas such as storage space, like basements, are usually between £1 to £2 per square foot. Any upper floor storage will be more expensive at around £4 to £6.
Commercial rates will change from town to town and even just from shopping centre to shopping centre.
Luxury shopping centres can charge at least double the usual rates for a prime location in their space.
Office spaces are a completely different set of rules. These properties are usually valued based on where the space is located.
Generally, the pound per square foot is much lower for an office than it would be for a commercial shopping space. In Kent, the maximum price is £12, and the average price being paid by tenants is between £6 to £8. The tenant rate is then calculated based on the square footage.
Tenants rates will change about every couple of years. If the commercial market is buoyant and there is plenty of competition for space, then the rates will probably increase. Tenancy rates will fluctuate depending on demands.
How To Buy Commercial Property
Purchasing commercial property is very similar to the process of purchasing a residential property.
First, search online. Register yourself with an agent, view a property, and make an offer.
At this point, you can then apply for a mortgage.
This can be done with the help of a commercial advisor. The property sales will then go through the conveyancing process.
A solicitor or conveyancer will carry out all the due diligence to ensure that the property is sound, and you can exchange contracts just as you would with a residential property.
Though the process of purchasing a commercial property is very similar to that of buying a residential space, the length of time it takes to complete is much shorter, as there is no chain. An added benefit to commercial properties is that the fall-through rates are significantly lower.
With commercial properties, stamp duty must be paid. The rates are the same as residential properties. Any properties up to the value of £150000 will not have to pay stamp duty, but properties worth between £150001 and £250000 will have a 2% stamp duty rate. Any properties worth £250001 or more will pay a 5% stamp duty rate.
Just like with residential properties, there are some questions you can ask to find out if a property is right for you.
Firstly, is the property tenanted? Tenanted properties are highly likely to be approved for mortgages than untenanted properties.
So for a lot of people, focusing their attention on these properties makes far more sense.
Next, you may want to ask how long is left on the currently occupied tenant's lease. Lenders will tend to prefer to lend against longer leases with at least three years remaining.
This is because it guarantees you will be able to pay the mortgage for the minimum duration of time.
If you purchase a commercial property with a long lease in place, then it may mean that you do not have to worry about finding a new tenant just after buying the property.
If possible, ask for a current copy of the lease in order to check the details. Is there a tenant break clause? Are rent reviews frequently done? The lease contract will hold all of this information. The lease will also let you know how regularly the rent is paid. Commercial tenants often pay rent quarterly.
If you wish, you can ask for details about the tenant's record for paying rent. You will want to ensure that they are reliable and that you won't be left empty-handed.
If you do find yourself in a situation with an unreliable tenant, then you are legally allowed to instruct bailiffs. But don't worry, this situation shouldn't happen too often.
If you're looking at office spaces, ask if it is serviced. Serviced spaces are far more appealing to businesses because there is less upkeep for them. Costs like cleaning, maintenance, and bills, will all be taken care of with one regular payment.
Is Commercial Property More Expensive
Commercial real estate is generally more expensive than the average single-family residential home. This is due to a mix of various factors. Commercial properties take a lot of money to build initially. They require whole systems not needed for residential homes. Systems such as sprinklers and extensive HVAC and plumbing lead to the cost of the building increasing.
Another thing to take into consideration is the square fitting of a commercial property.
If you look at a residential property, it seems clear that a building with 3000 square foot would cost more than a building with 1000 square foot.
So with a commercial building that can often stretch higher than 10000 square foot, of course, the cost is high.
Are you looking for advice about investing in commercial properties for Tonbridge and Kent?
Contact us and give us a call about any information or advice about property assessments.