Commercial property investment – the risks and rewards

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Due to increased costs, many buy-to-let landlords are considering diversifying into commercial property. A commercial property business can be profitable provided investors are aware of the risks.

Some commercial mortgage interest rates are higher than buy-to-let residential mortgages, but rates are still relatively low. They are, however, likely to increase slightly in response to the recent Bank of England rise in the basic rate from 0.25% to 0.5%.

In the right location, rental yields can be as high as 10%. According to a November 2017 article, though, some investors prefer lower rental yields of between 5% and 6% in areas where there is high capital growth.

Commercial rented properties have different risks to the buy-to-let market. If a tenant leaves a property, it can often take a long time to find a new one, with no rental income until new tenants are found. On the other hand, commercial tenants tend to stay for longer than residential ones.

If a tenant’s business fails, there will inevitably be problems paying the rent. This means that it is important to research the tenants business before agreeing to them moving in.

If a landlord relies on selling commercial property at a profit for much of their income, they need to be aware that it takes, on average, a lot longer to sell commercial property than residential property.

Despite uncertainty in the British property market due to Brexit, properties can still be found at good prices in many high-demand areas.

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