Commercial or Residential Property Investment?
“Even with all the ups and downs of the past year or so, investing in property is still one of the best and safest things you can do with your hard earned cash.” says Central London estate agent, LDG.
But what’s the best option for you as an investor- commercial or residential? Let’s take a look.
Commercial Property Investment
A profitable endeavor for many years, commercial property remains one of the most lucrative opportunities for investors both in the UK and overseas. Industrial properties have been the big surprise so far in 2017, with 43% of landowners reporting expected capital growth.
There have been some changes over the past couple of years, with yields dropping, but things are looking up again. Large scale regeneration projects in London and other property hotspots across the UK have presented plentiful chances for investors to reap significant rewards, but it’s outside of the capital that is proving to be the most lucrative for smart investors.
The East Midlands is showing considerable demand for commercial properties. A new development on the Nottingham University Campus is igniting interest from investors both here and overseas, and there’s reported lack of sufficient commercial and industrial properties in Peterborough which is presenting further opportunities. Other areas to watch out for include the East (Ipswich in particular), North East, North West and parts of Scotland.
So, what are the pros and cons of commercial property investment and why might it work for you? The first thing to take into account is cost. Large shops and complexes obviously have a higher price tag than smaller residential projects, so you can expect a significant ROI if you pick the right one. However if you have less capital to invest, you’ll probably need to look at collective investment schemes or other joint venture opportunities in order to make it worth your while.
Commercial rental agreements tend to be longer than residential agreements, giving you more breathing space and peace of mind, and rental prices usually go up year on year. Then there’s the added bonus that tenants of commercial properties are generally responsible for their own repairs and maintenance.
Another con of commercial property investment is that there’s often such a disparity between the value of different properties and more things to be taken into consideration. Without experience or proper professional advice it’s easy to make a mistake, so do your research first before committing to anything. There’s also a lot more red tape to think about with a commercial property, and the market is more vulnerable to economic factors than the residential market.
Residential Property Investment
There’s an old saying that if something’s relatively risk free it’s “as safe as houses”, and this certainly still seems to be the case today. Andrew Reeves agrees-“With a rapidly expanding population and developers simply not being able to keep up with demand, we know that there’s good money to be made from bricks and mortar and this is likely to remain the case for the foreseeable future.”
Even in the light of Brexit, residential property investors still stand a good chance of seeing strong rental yields year on year. The private rental sector still continues to show significant demand, with many millennials struggling to get a foot on the property ladder and looking for an alternative way to set up home. HMOs are in particularly high demand, especially in areas with a large student population.
With London prices still unmanageable for most modest investors, people have been moving out of the capital and looking for other more realistic opportunities. Manchester has been the leader in terms of residential property opportunities so far this year, with Edinburgh and Birmingham hot on its heels. All have been subject to some significant regeneration projects, bringing about a boost in interest from the UK and overseas.
Like the commercial market, residential has its cons. Chances are you’ll need to be a lot more hands on with a residential rental unless you go through a letting agency, so expect a demand on your time. You’ll also need to factor in repairs, safety checks and maintenance to as this is the landlord’s responsibility, not the tenants’. And, especially in light of the Grenfell tragedy, you’ll need to understand your responsibilities inside out.
Robert Holmes concludes, “There are pros and cons of both commercial and residential property letting, but both types still offer significant opportunities for investors. The important thing is to do your homework and make sure you’re able to uphold your responsibilities before signing on the dotted line.”