BTL landlord trying commercial- what differences? Help!

[Poppy]

I am new to commercial property (currently own a few residential properties which are let on ASTs).

I am considering expanding my business to commercial properties. I have seen a high street property advertised for sale. It comprises a shop and a couple of flats. The vendor tells me that he has tenants in occupation for all three.

This is going to be messy, but here goes…

What deposit percentage will a commercial lender require? What multiples should I work with when gauging the mortgage and covering rent? How do I come to a decision as to the best purchase price?

What is a typical kind of lease for commercial tenants occupying a property which comes under A1 or A2 use? How do I go about finding new tenants in future?

What are the main differences between being a commercial landlord and a residential landlord?

Where can I find more information?

Thank you in advance.

[Editor]

Investing in commercial property is quite a bit different to residential investment, so like the latter you need to do your homework and proceed with caution if you have no previous experience.
There are several good books listed on the books section of this web site, and the Property Investor News Guide here is a good start - http://www.landlordzone.co.uk/commercial/comprop.htm
It is also wise to get some good local professional advice for valuations and tenant demand - ask agents in the locality and if possible a good local chatered surveyor who deals with commercial property.
Generally, mixed use premises offer a good starting point as they reduce your risk: it's almost always easy to let the residential parts, which should cover the running costs of a vacant shop in a worst case senario - remember you pay empty Business Rates on vacant property.
Do your own research into local trade - burn the shoe leather!
Every commercial finance arrangement stands on its own merits - there's no such thing as a buy to let mortgage with commercial, so you're likely to have to put more down, especially if you have no track record in this. In any case it's in you own interest not to be too highly geared at this time when prices are looking toppy!
Key factors which will affect your ability to raise funds will be:
1 - location and type/size of property
2 - potential future tenant demand
3 - the quality of your existing tenant and lease terms - mainly length and rental
4 - your own track record
Speak to some of the commercial lenders here -
http://www.landlordzone.co.uk/dir/finance-mortgages.htm
Having said all that, with a residential element such as 2 flats, it could be possible to swing a buy-to-let mortgage?
Typical lease lengths are difficult to quantify, but generally a good secondary (small business) tenant would be on a 9-year lease or there abouts. 15 years would be excellent, whereas 5 years might be acceptable. Less than 5 years would indicate a higher risk tenant.
Local agents are your best bet when it comes to getting new tenants and assessing potential demand - there are no guarantees and you only need to see how many vacant shops there are around to see that there are risks!
For the main differences in commercial/residential see the guides and the seminar presention shown on the above link.

[Poppy]

Thanks Editor, I certainly appreciate your post. I have started my own research (both on foot and via the net) and am considering buying a book or two.

If there are other forum members who wish to reply to this thread, that'd be great too.

[Tax Accountant]

I consider that commercial properties are better investments as you could get tenants to sign up for a long period and they are normally responsible for all repairs etc.

Commercial property used as a business also qualifies for business asset taper relief, meaning that you will get 75% gains on the commercial part knocked off after only 2 years.

I would say that the price would be approximately 10 to 12 times the annual rental, depending on the strength of the commercial tenant.

Ramnik

[Editor]

It is true that a landlord whose tenant is in serious breach of contract can exercise an option to forfeit and re-enter the premises peacably!
Having said that:
1 The process is a little risky and you could easily find yourself commiting a criminal offense if you do not follow certain procedures.
2 The whole process is under review by the Law Commission and is likely to be replaced with a statutory process and Civil Procedure Rules soon.
3 It is not always in your best interests to take over the property. It may be better to keep your tenant under his obligations and sue, or use bailiffs to seek redress for outstanding rent etc.
In practice it may be best to speak to bailiffs who are experienced in these matters - see: http://www.landlordzone.co.uk/dir/bailiffs-investigators.htm
A safer alternative for possession is to seek a court order beforehand - contact your local County Court, and see the Court Service Web Site:
http://www.hmcourts-service.gov.uk/