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Residential or Commercial Property - Where Should You Invest?

on Friday, 13 October 2017.

The prospects for savers in the current economic climate are not promising. Whilst investing in property is not without its trials, the potential returns on investment prove tempting for many.

If you are thinking of dipping your toe into the Bristol property market, investing in residential property may be your first thought. However, when deciding your objectives and financial goals for this particular investment, it is worth taking a moment to consider the alternative option of investing in commercial property, which can also offer  rewards.

Jackie Roe, Head of Residential Conveyancing at Bristol based law firm VWV, advises that taking some legal advice at the outset, before signing the contract could help you reach a clearer decision, especially if you have not purchased investment property before.

So what should you consider?

Return on Investment

Is your priority to achieve a good income or capital growth, or both?

You should seek valuation advice, as the return on capital and income can differ greatly. The length of time you intend to own the property  will also play an integral part in your decision as to which may be more important to you, both now and in the long-term.

Type and Length of Lease

Leases are by their nature complex documents, and many older leases are poorly drafted and not in line with current lender requirements. Leases can contain restrictions, obligations, covenants and rights which can be difficult to understand without professional advice.

You should also consider the length of lease and how long you want to be able to let the property for. Residential property tenancies tend to be for 6 months or a year before requiring renewal, whereas commercial leases tend to run for 5 or 10 years, which makes them an altogether different prospect.

Legal Structures

Residential properties are typically let on Assured Shorthold Tenancies, whereas commercial property is governed by the Landlord and Tenant Act 1954. The ability to obtain possession at the end of the tenancy depends on getting the paperwork right at the beginning. If you get it wrong, it could prove  expensive and inconvenient in the long-run.

Taxation Regimes

It is not possible anymore to offset the loan interest against tax to buy a residential property, whereas tax relief is available in full for commercial property. There is an extra charge of 3% Stamp Duty Land Tax on residential, but not on commercial property, which can have a big impact on the more expensive purchases of property or with multiple purchases. However, VAT may apply to commercial but not to residential property.

Seek Professional Advice

The law in this area is complex. Take the time to obtain professional advice before you buy, so you are aware of any potential pitfalls and of the advantages of the property you intend to purchase, whether it is commercial or residential property.

In this way, you are most likely to achieve the right purchase and, importantly the right investment, for  your short and long-term needs.


For more information, please contact Jackie Roe, in our Residential Conveyancing team, on 0117 925 2020

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