Should you convert a commercial property into residential?
By Carl Agar
Altering a commercial property - such as a former office, a shop with flat above, a pub or even an old library - into a residential property, may sound ambitious, especially if you've never done it before. But this has proved a popular property investment strategy for many savvy investors for some time now.
In fact, upmarket estate agents Savills say the number of office to residential conversions increased by 40 per cent in 2017 alone.
So, why are previously die-hard buy-to-let investors turning to commercial properties?
Well, as you'll have read in Simples Emerging landlord report, the property market is changing. And savvy landlords are changing with it looking for opportunities, and diversifying their strategies
The commercial property sector has been somewhat depressed in recent years - with many businesses changing their business models and vacating their traditional business environments. Consequently, there is an abundance of empty commercial properties with owners willing to sell. Whats more, the government introduced a little something called ‘Permitted Development Rights’ - meaning certain commercial properties can be converted to residential properties without the need for full planning.
All together this makes a great and attractive opportunity for landlords willing to look at things a little differently.
So, what do you need to know about converting a commercial property into a residential property?
Check out the list of pros and cons right here and judge for yourself.
Pros for converting commercial property into residential
- You may not require planning permission (many shops and offices come under Permitted Development Rights, for instance).
- Even if you do need planning permission you’re likely to get it since the Government’s National Planning Policy Framework makes the reuse of empty buildings a priority
- You’re getting a much bigger property for your money (in many cases)
- Offices tend to be pretty centrally located and therefore attractive residential lets.
- You won’t have to pay higher Stamp Duty for your ‘second’ home since non-residential and mixed-use properties are exempt from this.
- There’s no property chain to delay your purchase so it should all be much smoother sailing
- You won’t have to pay VAT (currently 20 per cent) on the purchase if you issue the seller with a 1614D form.
- You can also save on VAT (from 20 per cent to just 5 per cent) if you need to spend money on construction works in order change your commercial property into residential accommodation.
Cons for conversion: commercial into residential
In some cases you will have to apply for planning permission, this may involve architects and therefore fees!
You'll need to take out a specialist buildings survey on the structure of the commercial property prior to any conversion, again increasing costs
Conversions can become money pits of not managed carefully.
You'll need to get a specialist commercial property solicitor for the purchase
Often you will need development finance to do the project and this can prove more costly than a typical buy-to-let mortgage
If your keen on adopting a Commercial to Residential Property Strategy then my advice would be to go direct to the commercial agent property websites as many of them do not list on the mainstream property portals!