Commercial Property Investment, an alternative to Section 24 Tax changes?

The full impact of Section 24 tax changes for residential landlords is only a few weeks away. Many investors in residential property have already discovered that some of their investments will soon barely cover their costs and are making the decision to sell or move over to limited companies.

Meanwhile Commercial property investors are quietly getting on with it, unaffected by section 24 and the increases in purchase taxes. Investing in commercial is still viewed by many as a black art, but in reality it is actually not so difficult. Yes you need to gain knowledge and consider lots of variables but the same is true for most residential investments.

lack of clarity is one of the biggest advantages of the Commercial Property market.

Of course, the irony of the new tax laws is that Rich Residential investors with little or no external finance will be unaffected by the tax changes. 

Those who are starting out and trying to build some financial security are now thinking twice about residential property investment as the Government continues to apply pressure to the sector. How long will it be until limited company status for residential portfolios is challenged by HMRC?

Why not consider Commercial Property as an investment class for you?

We originally only invested in Residential, but then started to realise the big opportunities to add value to Commercial assets. We needed to build equity in our portfolio, however buying residential and hoping it will go up in value was not guaranteed or fast enough. Commercial made a huge difference to our investment strategy.

People tell me they see lots of barriers and can’t work out how they can get started. I believe this lack of clarity is one of the biggest advantages of the Commercial Property market. Agents are not always helpful, it is difficult to know what is for sale and indeed what isn’t. Websites are not kept up to date, sales data is hard to get hold of and sometimes the “old boys network” seems impenetrable.

What most consider as a big reason why they can’t get into Commercial property is actually the biggest opportunity!

As economists might say the perfectly balanced market can be obtained when all market data is available for everyone to see and use. Of course it is never possible to reach this utopia and more importantly there would be little opportunity for investors to add value that others haven’t already thought of and priced in.

For example you may have come across the situation where you noticed that a terraced property has come onto the market with an unconverted loft and others on the same street have already been converted into an extra bedroom. It is exciting to spot that opportunity to add value. How did you feel when it was sold way above the amount you offered? The uplift had already built into the price, leaving very little margin for you, the developer. The precedent had been set and the market data was there for all to see. The upside is less risk but unfortunately the profit is low.

Find out as much as you can, annoy some agents, kick some tyres and start small.

Commercial Property is full of partially hidden opportunities to add value as long as you are willing to look for them. For example we purchased a warehouse with a single occupier under a traditional lease which on the face of it was a little boring and static. Even worse the lease was due to come to an end the following year which meant there might be no income. However when the client moved out we were able to split the unit down into 10 different spaces. The net income has almost doubled which in turn has considerably increased the value of the property. The works were even partially funded from a settlement on dilapidations. This purchase did take time to put together and is worth looking into more as we learnt loads from it, but more on that another time.

So, perhaps the very thing that is holding you back should be the reason to press on. Find out as much as you can, annoy some agents, kick some tyres and start small. Being in the swim will make a huge difference to your knowledge, connections and opportunities.

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Jerry Alexander

You can use Commercial property to increase your net worth by being an active investor. Most people think that commercial is a park and hold strategy. Commercial investment strategies don't have to be one dimensional. There are many different ways to increase your ROI and ultimately grow the size of your equity.

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