Pete Matthews a local investor joined us for our March Property Meet to talk about his experience in investing in commercial property in comparison to residential with a few added anecdotes of his dos and don’ts.
Lorraine Wilson gave an update regarding their challenge against the council’s approach in relation to renewal of HMO licences. They are now in the process of challenging it with the Ombudsman and will keep everyone updated. She explained that in response to the questions she had asked in her letter to the council, they confirmed that they had received 7 replies to their consultation questionnaire about HMO licensing; this accounted for only 2% of landlords.
There were no other updates.
Pete Matthews was introduced to everyone. Pete began by stating that most landlords invest in property for either income, capital growth or both; depending on where you sit, depends on what you invest in. For example in London you invest for capital not yield.
Buying a small commercial property at auction is very similar to buying a small residential property. Bigger commercial properties are all about the rent. Putting the retail market to one side, the commercial market moves very quickly and is hard to value. Commercial property is linked to the rent you get; it’s only worth what someone will rent it for. Calculating the rent is linked to the lease and the terms of the lease.
The multiplier is usually the rent divided by the value of the building. He advised that for anyone who’s looking to invest in bigger commercial properties they should seek proper legal advice; without the rent coming in your valuation substantially shifts.
In his view smaller commercial properties are those valued up to £500K. Pete said he believes that it’s good to have a mix of residential and commercial properties in your portfolio. When you’re looking at investing in commercial property you should ask yourself the following questions; what am I getting ? What else could I do with the property ? How can I change the value of it ? The value is intrinsically linked to the tenant and the covenants. There are lots of aspects to think about when it comes to investing in commercial property !
Pete then went on to explain a bit about the capitalisation rate; this is the rental value less the core costs multiplied by the market value this gives you the yield. Unlike a residential property, you have got the option of alternative use with commercial property. There is a higher risk with commercial property but a higher yield; with smaller commercial properties there is the potential for greater capital growth.
Pete concluded by saying that that when you grant a lease on commercial property in effect you are giving control to that party. You should always look at what else you can do with the commercial property; in his opinion it is good to spread the risk by having a spread of both residential and commercial investments.
Pete was thanked for his very informative talk.