Because of increased costs, many small buy-to-let landlords are diversifying their property portfolios by purchasing commercial property that provides higher returns, but there are some risks. Small landlords that own a few properties are unlikely to afford large scale commercial property such as shopping malls, large warehouses, and multi-story offices.
They are more likely to purchase smaller property such as shops, restaurant property, garages, small hotels and workshops.
Commercial properties charge higher rents than residential property. This is partly because of the higher risks. If the business that rents a property fails, they could liquidate with rent arrears owing. The property could then be empty for some time as it usually takes longer to find a commercial tenant than a residential once. However, business tend to take out long leases and often have yearly rental increases based on the inflation rate.
If the landlord does not have sufficient cash, they will need a commercial mortgage to buy the property. Commercial mortgage interest rates are assessed on an individual basis. The borrower could be charged a higher interest rate than a residential mortgage.
That are legal regulations that a commercial landlord needs to comply with that are different than buy to let property. The landlords need to keep up to speed with all current and future regulation.
With sufficient research and knowledge, a landlord diversifying into commercial property can increase the profitability of their property business.