New to Property? Investment FAQ’s
What yields can I expect in the current market?
Anything from 4% through to over 10%. As with other investments, the yield is tied to the risk element.
Low risk properties let to blue chip companies for with many years left on their leases are much sought after as safe investments and have a yield that reflects this at around 4-6%. Medium to large businesses occupying premises with 5 to 8 years unexpired on their leases might be in the 7-8% range. If you are seeking above 9% as a return the property is likely to be multi let with smaller companies, on shorter leases and greater risk of void space. These sorts of properties are also likely to be more management intensive.
Ultimately the returns achievable even on the safest investments will at present exceed the majority of other asset classes, and if the right property can be found much greater returns are available.
What purchase costs should I be aware of?
Up until the Spring budget of 2016 it has been industry standard to budget 5.8% for a commercial property purchase. So a £500,000 would have typically looked as follows:
Stamp Duty |
4% |
£20,000 |
Agency Fee |
1% |
£5,000 |
Your Solicitors' Fee* |
0.5% |
£2,500 |
Misc** |
0.3% |
£1,500 |
Total Costs |
5.8% |
£29,000 |
*typically
**building survey for example
However, the Chancellor has made changes to Stamp Duty Land Tax meaning there is now a ‘sliced’ formula applied. No SDLT is applied to the first £250,000 of a purchase, 2% is applied from that point to £500,000 and thereafter 5% is applied.
The net effect of this is that purchase costs on acquisitions below £1m tend to be less than under the previous system, but above £1m purchase costs are higher than was the case historically.
Do I have to pay VAT on property purchases?
There are quite a few investment properties which are not registered for VAT. So you would not pay VAT on the purchase price or have to charge it on sale. However, it is prudent to register for VAT, because many commercial investment properties are VAT registered and by ‘opting to tax’, VAT on a purchase effectively becomes irrelevant and will not cost you anything. It also means you will be able to reclaim VAT paid for any products or services connected to the property post purchase.
What investment services do LRI offer?
While we are aware that many individuals and companies would like to invest in a UK commercial property, many do not have the time, inclination or knowledge to follow this up. LRI offer a “one-stop shop” service to make the process painless and stress free.
Source property
In a quiet market, LRI uses its industry expertise and agent contacts to find the best assets currently available.
Negotiation with vendor
LRI will target a yield which matches the client’s aspirations but between 6% and 10% is realistic and achievable.
Arranging Finance
If a loan is required, we have a number of banking contacts who we have successfully done business with in the past.
Due diligence
LRI organises all professional work including building survey pre-acquisition reports, legal searches etc. Tenant research is a priority and LRI have access to excellent credit checking facilities.
Purchase
LRI will liaise with the vendor and co-ordinate solicitors, and other involved parties, throughout the exchange and completion process.
Property and Asset Management
Post completion LRI will look after the asset; collecting rent, service charge and insurance monies, organising maintenance, arranging insurance and ensuring the building is compliant with health and safety legislation. LRI will work to maintain and add value to your property through intensive management practices and building excellent relationships with the tenants to ensure high occupancy levels.
Disposal
When the time comes to sell the asset LRI can advise you on how to do this to ensure best price and a quick, straightforward sale.
For SIPP Investors
What type of property can be purchased through my SIPP?
Retail, Office, Industrial and Leisure properties that are let to businesses and producing a rental income.
HMRC rules state that residential property is not a permissible acquisition through a SIPP.
Are there any SIPP specific rules I should be aware of?
The most important one to be aware of relates to borrowing. You may only borrow half of the total value of your SIPP. If your SIPP is worth £500,000 then you will only be able to borrow up to a maximum of £250,000 to help fund your property purchase. In this example, the borrowing restriction does not require the SIPP holder to use the whole fund; a purchase fund of £350,000 made up of £250,000 borrowing and £100,000 of SIPP capital would be within the rules.
How long will my pension fund be invested in property for?
This will depend on the way in which you purchase the property and your investment objectives. LRI will give you property advice in respect of the actual property, its condition, lease terms and covenant but it is down to you and your advisers as to how long you hold the asset.
Can pension funds be combined?
Yes, subject to circumstances. LRI work with independent financial advisers (IFAs) and SIPP schemes who offer property syndication services. We do not offer pension or investment advice and individuals seeking advice on acquiring property through a syndicate should contact an IFA or ask your IFA to contact LRI for further information.
LRI are not authorised and regulated by The Financial Conduct Authority.
Market
Update
January 2019: UK Commercial Property – Heading into 2019 (151k PDF)
January 2018: Commercial property predictions for 2018 (260k PDF)
January 2017: Political landscape continues
to impact on UK Commercial Property
(not necessarily in a bad way). (260k PDF)