From the outside, commercial conversions sound like “big deals” and a lot of hard work, so why are they becoming so popular? Because it’s all about scalability. Undertaking “bigger” deals such as these doesn’t have to mean harder work, more hassle or more stress than a smaller deal because the ‘leg work’ is, in fact, pretty much the same.
Think of it this way. If you’re going to buy a buy to let, this will involve dealing with estate agents and paperwork. It will involve dealing with solicitors and mortgage brokers. Essentially, it will involve doing the same leg work as with a commercial conversion deal. However, when you do a commercial conversion and when the project is complete, your profit should have more zeros on the end of the figure. What’s more, it’s likely it will take the same amount of time and effort as a buy to let.
There are other advantages of commercial conversions too. At present, the Government is actively encouraging investors to make use of redundant, obsolete commercial buildings by turning them into residential accommodation. In comparison to recent years, it’s now much easier for investors to obtain planning in a bid to meet the demand for more housing.
And, there are potential tax advantages too in that you can claim capital allowances. Of course, it all depends on how you structure your deal, but with the right advice from your accountant it might turn out that if you’re doing a deal that’s “big enough”, then your capital allowances could eradicate your income tax. A massive plus!
So, there are several reasons why commercial conversions have become so popular. In my opinion though, I think the main attraction is that commercial conversions are chunky deals that have the potential to make you a lot of money for the same amount of effort. They have the potential to give your cash flow a boost to really help you progress your property business.
This is something that I’m actually doing myself right now. Working to convert an old office building into apartments, I hope to sell the units on for a profit of around £170,000 – and to give my business a cash boost.
Now, if you’re thinking of doing the same, then you’re probably wondering where you could find deals like these. The quick answer to this question is “anywhere” – any area where you could find commercial properties which are of course, at the right price and where the figures stack up.
What I would also look out for are properties which are becoming obsolete. As times change – fashions, technologies and tastes – the panorama of available properties is changing too. Just the other day, Debenhams announced they were heading for trouble and are following in the footsteps of The House of Fraser and many other retailers. Many are disappearing from the High Street and with their downfalls is coming an influx of available property. Property which could potentially be converted into residential accommodation with prior approval permitted development.
Then you have other changes, such as the trend towards home-working and hot-desking. Many employers are shifting towards their employees only being office-based a few days a week with shared facilities for members of staff being more the norm. As a result, not all companies need such large premises, and plenty of spare office buildings are coming onto the market.
It’s changes such as these in technology and fashions that are shifting the panorama for property investors. Think back to the 80’s. When computers first started to become commonplace, many occupiers looked to have raised floors for cabling and facilities such as air conditioning. Many office buildings were unable to accommodate features such as these and became obsolete.
Today, many of these same buildings have been turned into residential accommodation. So, you have to think that times change and things move on – and with it, more properties are going to come available. And, with more properties come more opportunities, so long as you know where to find them.
So, let’s think about where to start.
If you’re just beginning in commercial conversions then I would suggest starting at the local estate agents. Beginner investors are unlikely to have much credibility – by the way, this doesn’t mean you can’t do it because with the right guidance and help everything is possible – but local agents are likely to be more amenable and helpful.
When you’ve done a few deals, you should be able to progress up the food chain and move on to the larger national agents for the “bigger” deals. Of course, bigger deals do come with a higher risk element, but you should find that there’s nothing overly complicated about commercial conversions so long as you have the right training and grounding.
Peter Jones B.Sc FRICS
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