Estate Agents (Part 12)
It’s time to think about commercial conversions and how to find deals that will fit this strategy – but first, I want to think about why we would want to do commercial conversions in the first place. After all, from the outside, these sound like big deals and a lot of hard work.
The reality is though, that with a strategy like this it’s all about scaling. Just because commercial conversions are “bigger deals”, it doesn’t necessarily mean that they are going to be harder work, more effort or even more hassle than a “smaller deal”. Let’s think about why.
If you’re going to buy a buy to let, you’ve still got to deal with solicitors and mortgage brokers. You’ve still got to deal with agents and complete paperwork. In fact, whether you’re buying a buy to let or a commercial conversion, you have to do the same leg work. However, if you’re doing a commercial conversion, your profit is potentially going to have more zeros on the end when the project is finished, AND it’s probably going to take the same amount of time and effort as a buy to let, for example. So, scalability is a massive advantage of commercial conversions.
Then there’s another big advantage of commercial conversions at the moment too. With the shortage of housing in the country, the Government is actually encouraging us to do them and to make use of obsolescent and redundant commercial buildings by turning them into residential dwellings. In fact, the Government has loosened up the planning and has made it far easier for investors to obtain permission in comparison to previous years. This is a big plus.
There are other advantages too – tax advantages for example, in that you can claim capital allowances. Depending on how you structure your deal (and of course, with your accountant’s advice and guidance), you might find that if you’re doing a deal that’s big enough, then your capital allowances could eradicate your income tax – that’s got to be worth thinking about!
In my opinion, there are many good reasons why you might want to get into commercial conversions but overall, I think the main lure is that they are chunky deals that will make you more money for the same effort. In fact, if you want to do something which could potentially change your life and bring cash flow to your property business, then commercial conversions could certainly be the way to do it.
Right now, this is exactly what I’m doing. I’m currently working on a project to turn an old office building into apartments. When I sell the apartments on, this deal should give me around £170,000 profit. (Not a bad amount to top up the bank account).
If you want to get into commercial conversions, you’ll be questioning where you are going to find your deals. The quick answer to this question is “anywhere” – any area in which there are commercial properties.
What you obviously need to be looking for are properties that are at the right price where the figures stack up, but also properties which are potentially obsolescent. Let’s think about why.
Tastes, fashions and technologies are constantly shifting and this is changing the panorama of available properties. At the time of writing, both Debenhams and The House of Fraser have recently announced they’re in big trouble, and they follow many other retailer-types that have disappeared from the High Street. So, at the moment there’s plenty, for example, of retail property which could be converted into residential accommodation using prior approval permitted development.
But, it’s not just about retailers closing down. Lately, there has also been a shift towards more home-working in the country. Many companies are following the trend of hot-desking whereby employees are office-based only a few days a week and share facilities with other members of staff. This means that companies don’t always need such large premises, and as a result, plenty of spare office buildings can be seen knocking around which could potentially be turned into residential units. It’s changes such as these in technology and fashions that shifts the panorama for property investors.
This is nothing new; I remember back in the 80s when computers first started to become common use and many office buildings became obsolete because they weren’t capable of accommodating new demands. Occupiers wanted to have raised floors for cabling and facilities such as air conditioning, but many of the buildings just couldn’t accommodate this. A lot of these buildings were subsequently turned into residential accommodation – and the same thing is happening today. Things move on; more properties are coming available and with it, more opportunities.
So, where could we find these opportunities? Once again – as with many of the other property strategies that we’ve been talking about lately – I would start with local estate agencies. The reason for this is that if you are just starting out, then it’s unlikely you have a lot of credibility behind you. (By the way, the fact that you haven’t got any credibility doesn’t mean you can’t do it because with the right guidance and help, everything is possible).
In my opinion, to find deals such as these I would head to the local estate agents as they are probably going to be more amenable. Then, when you’ve got a couple of deals under your belt you can move up the food chain and start talking to larger national agents. Obviously, with bigger deals there is a slightly higher risk element, but if you get the right training, then you’ll find that there’s nothing particularly complicated about commercial conversions.
You can also go online to search for deals. There are various sites, for example Rightmove, that let you search specifically for commercial properties. So, take a look at what’s out there and start to identity opportunities that stack up for you.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to: www.ThePropertyTeacher.co.uk/the-successful-property-investors-strategy-workshop