Buying commercial property??

[Dr House]

Does anyone know anything or have any tips on buying commercial property?
I have found a very large shop (in a good area of sheffield) I am thinking of buying with a friend. He will run his own business out of it and pay me rent on my half.

We will need around 75% finance, what are the best options for getting finance other then a bank?

 

[Mercenary Keyboard Warrior]

Going to be incredibly hard in current climate to find anyone willing to invest.

High high street shop vacancy rates, whats he offering that can really work in this climate?

My suggestion, business plan, go see a bank with that see what they say.
You should be able to discuss with a small business expert at the bank and without actually comitting. If they feel you have a genuine decent business plan then you may have a chance for finding someone elsewhere.

Heres an example of a site (i have no idea if they are any good) typically your looking for Venture Capitalists, they will not sit idly back though so expect some element of hands on and control on your business.
Every business I know that has had venture capitalists involved has been desperate to shrug them off later on and seriously regretted going that route, but its probably easier than a bank. The bank is advantageous in that if you pay your loan and stick to overdrafts etc they basically leave you alone, maybe with a bit of support from the same small business expert at the bank

Edit to add link I missed off : http://www.angelinvestmentnetwork.co.uk/small-business-investors

 

[Destination]

Don't know of anything worthwhile outside of the banks.
They will be looking for an LTV of around 70%, as if you can't achieve this they will sluaghter you on the rates.

One odd thing at the moment about buy to lets and equivalent, is the fixed deals, that move to the banks own standard varaible rate after a period of time are all ridiculous.
In many if not most cases the standard variable is actually less than the 'deal', so you will find after 2 years you payments actually drop.

I've seen ones where the drop is over 2%, in fact in the process of buying such a farce as we speak, but base rate isn't going to be slapped up 2% in 2 years, might go up a nudge, but not as much as 2%. Bit of insanity around commercial lending right now.

As you will know make sure your solicitor draws up the deal for you and your half, so you can get shafted by your friends business failure, should that occur.

 

[Paul11]

would never recommend buying with a friend

 

[Dr House]

Thanks for the info. My friend already has a business running but needs to move as he is not in the best location and is paying too much rent.

70% LTV is not a problem for us, Im not looking for VC more a mortgage/lone on the property. I have no issue buying with this guy as I truest and know him well however I see this more as a 25 year investment.

 

[Mercenary Keyboard Warrior]

Another angle is consider renting a commercial.

Rates have been falling and you may be able to strike a very keen deal currently
(sellers will also often consider a let depending why they are selling), maybe a let with an option to purchase later on?

Give the business a good start in a rented and then if its sucessful buy. Investing in property is a big move, particularly commercial currently as no one knows if its going to bounce back with the marked change to more internet based companies etc

What would you do if he failed?

 

[Deep]

would never recommend buying with a friend

Cannot stress this enough! It's just not worth it

 

[Mercenary Keyboard Warrior]

Just seen you have updated, look for a better rent deal

Shouldnt be hard in current market, lots of companies are going back to landlords asking for commercial rent review (you can get expert help on this if you choose to pay).

Lots of landlords have caught a cold and his current one may be more than willing to accept a reduction vs the risk of getting no one in at all

 

[booyaka]

You got a pension fund? You friend got a pension fund?

You could then consider buying it via your pensions should the numbers add up.

In other words, if it is worth £150,000, you could borrow another £75,000 to buy a property for around £225,000. The rent from the property can be used to cover the mortgage repayments. If there is no mortgage, the rent will remain in your SIPP fund and can be used for other investments.

You can also "club together" your pension and your friends pension funds to purchase the property - you would in that case each own a share of the property based on the amount of money(pension fund) that you put into it.

If you had 40k pension and your friend had 60k pension - you would have 40% split and your friend 60% split - the rental income being paid back to the pension would therefore also be split 40/60% etc

However, it is important to bear in mind that the costs of buying and managing a property in a SIPP can be fairly hefty.

Investing in commercial property through your SIPP offers many advantages that include:

• tax relief on contributions paid into your SIPP;
• exemption from capital gains tax when the property is sold;
• exemption from income tax on any rental payments;
• increased cash flow if property is purchased from you or your company;
• the property will form an asset of your SIPP and therefore your creditors will not have access to it.

Any property purchased by your SIPP will normally be held in an individual sub-trust established under the principal pension trust deed. You and the Trustees (normally a life assurance company) will be appointed as the trustees of the sub-trust, which will purchase the property. This means that the property is legally owned by the trustees of the sub-trust and registered with the Land Registry in the names of the trustees, which includes you. By using this method of purchase, the sub-trust empowers you to take control of the management of the property.

Joint ownership can be a good solution for you if your SIPP is unable to raise the funds to buy a property outright. However, you also need to consider what would happen should you, or the other party, wish to sell a share in the future. It may be off-putting to a potential buyer to be able to buy only part of the property and this could be reflected in the value of the seller’s share, which may be reduced disproportionately against the total value of the
property.

You could also find yourself in a situation where your SIPP jointly owns the property with a totally unconnected third party.

It's a very good way of potentially purchasing a commercial property if it's the right route to go. I've done it for a large number of clients and it's worked very well.

Also if your friends business failed - your pension funds could then potentially rent the building out to someone else if you wanted to.

 

[dilated]

In the current climate your friend is in a strong position to pick up a very good short/medium term deal.

In the long term investing in property is almost always a smart move but there are a lot of reasons to consider alternatives.

 

[dowie]

would never recommend buying with a friend

sort of this...

If you were buying with a friend to let out to a third party then fair enough. If you were buying it yourself to let out to a friend then, not ideal but better than this...

Buying with a friend to then let out to the friend's business causes some obvious conflicts of interest. It could get quite messy if his business doesn't go so well and/or he starts falling behind on rent or even something as simple as how much to increase the rent by as he is also the landlord but might be more inclined to act in the best interests of his business than in the interests of his stake in the property.