With a strong guarantee of return on investment and the ability to scale your business as you see fit, it’s little surprise that so many investors turn to property letting as a way of boosting their portfolio.
Like many other industries, the COVID-19 pandemic wreaked havoc on landlords of both residential and commercial properties.
If you’re looking to make a sizable investment in property, you may be weighing up whether to pick up a number of residential lets or a larger commercial space. There are many pros and cons to both, and we’ll compare them below to help you decide.
Commercial landlords
Commercial landlords take ownership of buildings that are rented by businesses. It may be a single unit on a busy high street, an entire shopping mall, a factory or an office space.
The pros
- Long-term lets: Greater certainty often comes with commercial lets, where terms typically run over several years and in some cases even decades.
- Diversification: If your commercial property allows you to take multiple tenants, this can help keep your cash flow in rude health.
The cons
- Maintenance: A commercial let will likely be bigger – significantly in many cases – than a residential let. This can drive up running costs.
- Entry costs: Purchasing sizable commercial property is hugely expensive and you may be in competition with large investment firms for prized plots.
What to remember
Standard property insurance is no good for commercial landlords. A specific commercial landlord insurance policy could help cover you for events that homeowners do not need to consider.
Residential landlords
It’s estimated that there are nearly 450,000 residential landlords in the UK, ranging from private landlords of single properties to nationwide lettings agencies with hundreds, if not thousands, under their watch.
The pros
- Easily scalable: Made a success of renting out one property? Chances are you’ll be able to add to your portfolio quickly and soon build a sprawling empire!
- Support local businesses: Rather than having to call in big firms that may charge higher prices, you can find tradespeople local to you and create a reliable network for all your properties.
The cons
- Emergency costs: The systems that keep homes running come under a lot of strain and if you don’t have a big enough pot to cover home emergencies, it may lead to issues between you and tenants.
- Legal concerns: It simply comes with the territory that not all residential lets are smooth sailing. Problem tenants, unsatisfactory handovers and squabbles over charges are common, so knowing where you stand legally is vital.
What to remember
If you build up a sizable property portfolio, it may become cost-effective to hand over the management of it to a dedicated agency rather than fork out repeatedly for costs such as advertising and contracts.