Does anyone invest in commercial property?

[ComingtoKent]

I’m considering buying a commercial property as I understand that it would give better returns than residential and is more straightforward with regards to maintenance and repairs etc.

I would be a cash buyer, no mortgage. Does anyone have any experience or advice they can share please?

What kind of commercial property are you planning to invest in? The level of risk varies wildly.

I’m really not sure yet, I’ve just started looking into the idea. Probably not retail premises in the current situation, maybe something like a dental practice, Kwik Fit type business or even a pub/hotel/takeaway.

Have you got experience in any particular commercial property area?

Thanks for replying, by the way!

I work for a massive commercial property investment fund but haven't ever invested myself.
I would say the level of risk and hassle massively depends on the type of property/type of lease. And there is the unknown element too. You certainly couldn't plan on it being a "cost free" investment as tenants can go bust/breach the lease/try and wriggle out of repairing obligations etc.

We have been cushioned fairly well from the pandemic because we have such a spread of investments but obviously if you hold an individual property you don't get that balancing effect (some tenants are having a terrible time others are doing very well).
On the other hand as you are buying mortgage free I guess you could set some of the rental income aside to build up a capital fund to deal with the costs of dealing with bad tenants /dilapidations etc.

I would recommend getting lots of advice before starting, and in particular remember agents (just like with residential property) want to put a really positive spin on the investment. Invest in a really decent lawyer to review the property and the terms of the lease .

Thank you very much for all the detail, very interesting. I will definitely be getting legal advice before I make any decisions. Can you recommend any sites or forums that would be useful?

We looked at this early in the year as you can hold commercial property in your pension and get debt against it. We took advice and were told to avoid retail and go for mid- sized office space as it always lets. In light of covid I am very glad we didn't go for this.....The only reason we didn't proceed was because we started dealing with an advisor who tried to fleece us and I got cold feet.

Try to get a property which already has a tenant with a long lease.

I wouldn't touch commercial property with a bargepole as an investment.

It's highly illiquid. Trading in a number of investment funds has been suspended as they can't sell the property quickly enough to pay people wanting to take their money out of the funds-and there's going to be an abundance of office/retail property available over coming months which will act as a downward pressure on prices.

Commercial property is risky. You should get lots of different advice and do your own research.

Some broad ideas for investing in property rather than the traditional bricks and mortar are student accommodation or a real estate investment trust or you can trade real estate shares on the stock market such as unite group or redrow.

The difference between shares and real estate funds are described here.

Thank you for all your input. It’s still very much a vague idea that needs a lot more research and I will bear all your comments in mind. Any other investment ideas will be gratefully received!

This sounds incredibly high risk. The high streets are dying and i expect there is no shortage of empty commercial units. Commercial property funds and investment trusts -some has suspended trading and others have cut dividends . Those overly exposed to retail space are most at risk. Having said that many commercial property funds are very cheap now and trading at a significant discount to NAV. I wouldnt touch it.

We have two that my partner inherited but they are occupied by fast food outlets so have been very solid. The yield is quite good when looking at the value of the properties but you have to be on the ball and fair among of work.
He also rents out a house he bought before we moved in together and the tenant is awesome so it is very little work but a low yield as we have never put their rent up in seven years.
Commercial = higher yield, more work
Residential = lower yield, less work

I think this is not the usual way round though.

Trading in a number of investment funds has been suspended as they can't sell the property quickly enough to pay people wanting to take their money out of the funds

That’s actually not why trading was suspended. That was the reason in 08 for most, but not all funds. The reason was linked to valuations.

Commercial property can be excellent, but it most certainly higher risk than residential. I have clients with dental surgeries, warehousing, offices, manufacturing units and each has faced different and complex issues. They have though been good earners. Often the property is linked to their own business.

1 property is more risky than a portfolio, but you’d need big bucks and essentially it’s your job managing it.