Potential yield
There is no single gold-standard for semi-commercial yields because of the broad range of properties and locations you’re dealing with. However, investors can expect to earn between 6pc and 9pc, with stronger yields generally available outside the most expensive parts of London and the South East.
Mr Kreeger said landlords should be suspicious of property yields that look too good to be true and investigate why they are so high.
“You must distinguish between a genuinely attractive yield and a high yield that compensates you for a problem,” he explained.
“If the commercial unit has a short lease, a weak tenant, comparable commercial units in the area are taking a long time to let, or significant capital expenditure coming up, a 9pc yield may not be as attractive as a 7pc yield from a property with strong, sustainable income.”
The rewards
Managing a hybrid property comes with handy perks:
Lower stamp duty costs
Stamp duty is calculated on commercial rates, not residential, even though only half of the building is occupied by a business. Commercial stamp duty is charged at 2pc on the portion of the purchase price between £150,000 and £250,000 and 5pc above £250,000. Meanwhile, residential stamp duty rates on buy-to-let investments are calculated on every penny of the purchase price, with rates starting from 5pc and climbing all the way to 17pc.
On a £500,000 property, a semi-commercial landlord will be charged £14,500 in stamp duty, compared with £40,000 for a buy-to-let landlord.
Higher rents
Commercial rents are typically higher than residential rents and landlords benefit not just from the diversification of their income but, provided the correct provisions are included in the lease, they can enjoy greater stability too.
Flexibility to change
Permitted development rights allow landlords to change the use of their commercial property with relative ease.
Kunal Mehta, managing director of bridging lender SDKA, explained: “Take a typical high-street property with a shop on the ground floor and flats above. You may buy a typical high-street property because the combination of commercial and residential rent produces an attractive return, but you also have to think about what you could do with the building in five or 10 years’ time.
“For qualifying properties in England, permitted development rights can potentially allow certain Class E commercial space to be converted to residential through the prior approval process rather than a full planning application. That gives investors another option if, for example, demand for the shop has weakened but demand for housing in that location is strong.”
