Does A Mixed-Use BTL Investment Make Sound Commercial Sense?

Does A Mixed-Use BTL Investment Make Sound Commercial Sense?

Does a Mixed-Use BTL Investment make Sound Commercial Sense?

Could a semi-commercial investment help to bypass recent BTL changes? We take a look at whether buying a mixed-use property makes sound commercial sense.

Buy-to-let investors have had everything including the proverbial kitchen sink thrown at them in the last couple of years, but could a semi-commercial investment help to bypass the recent changes? We take a look at whether buying a shop with a flat above it makes sound commercial sense.

 An increasingly toxic cocktail

Given the introduction of last year's 3 percent stamp duty surcharge; the new stress and affordability tests that came into force at the start of January; and the mortgage interest tax relief changes coming in April, it's hardly surprising some landlords are reconsidering their options.

One of the strategies some landlords are considering is the potential for profitable investments in semi-commercial properties. The fact that these properties are exempt from the major changes that have hit the buy-to-let market means they could provide a viable alternative to residential buy-to-let. 

 The benefits of mixed-use properties

Since the introduction of the stamp duty surcharge last April, a buy-to-let investor with a mixed-use property would have paid significantly less tax than a residential landlord. This is due to the fact that these properties incur commercial stamp duty, which has not been subject to the surcharge.

As well as avoiding the stamp duty rate hike, investors in mixed-use properties are also exempt from the removal of mortgage interest tax relief. This change will significantly dent the yields of higher rate tax payers when it is phased in from April. 

Mixed-use properties also have the advantage that the commercial element of the property, namely the shop, allows landlords to bypass some of the costs usually associated with a residential investment. Tenants will usually pay for insurance, repairs and business rates in commercial properties. Business tenants also tend to sign up for longer leases, which can provide the security that at least half the property will be let. 

And the disadvantages...

As is the case with any property investment, it's not all plain sailing. There are a number of drawbacks associated with commercial properties that will impact on the residential aspect of the investment.

For example, it should be pointed out that it tends to take longer to find tenants for commercial properties, so you may have to be prepared for a longer void period at the start of the tenancy. It's also worth noting that finding business tenants can be more labour-intensive as they will need to be carefully vetted.

Finding a mixed-use mortgage

Purchasing a mixed-use property will require a commercial buy-to-let mortgage. Although mortgages rates across the board are low at the moment, borrowing costs tend to be higher on commercial buy-to-let mortgages, and this will eat into your margins. 

This type of loan is also more difficult to find. You won't be able to access mixed-use finance in your local bank. Instead, you'll need the assistance of a broker with experience in this market to help you navigate the deals available from smaller, more specialist lenders. This will add to the costs of the investment, as brokers can charge a commission of 1-2 percent of the total loan. Although this will not have to be paid by you, the lender will factor it into the cost of the mortgage.

Supply and demand 

When planning any buy-to-let investment, one of your first thoughts should always be the level of supply and demand in the area for that property type. If you buy a flat above a shop, you need to be confident there are plenty of prospective tenants for that accommodation. 

Similarly, you need to check the service provided by the commercial element of the investment is in demand in the area. Commercial rents are dependent on the profits of the business, so having a understanding of the commercial market in the area will be beneficial.   

While a semi-commercial property will help you bypass the stamp duty surcharge and the incoming mortgage interest tax relief changes, you must carefully consider the benefits and the risks of such an investment before you take the plunge.      

How can we help?

For more information about alternative buy-to-let opportunities in Camberley and the surrounding area, please get in touch with Martin & Co. Camberley today. 

t: 01276 691510