Have you heard? 

More and more property investors are turning to semi-commercial properties in 2024; and after you’ve read this article, maybe you will too…

What is semi-commercial property? What are the risks and benefits; and why are so many landlords starting to choose them over standard buy-to-lets?

What is semi-commercial property?

Semi-commercial property (also known as mixed-use property) is any property which combines a dedicated commercial space and a living space. 

The classic example of a semi-commercial property is a corner shop or off-licence with an apartment on the first floor above the shop; but it’s not the only way that commercial premises and accommodation can mix within the same building. 

Any type of business where the owners live and sleep on-site can be considered semi-commercial; including:

• Bed and breakfasts
• Airbnb properties
• Pubs and bars
• Music venues
• Offices
• Live-work units
• Horse stables and pet kennels

The living space doesn’t have to be above the commercial space, either. Any orientation of commercial and residential spaces counts; including semi-detached buildings with the living space attached to the business space or even certain land plots with fully detached commercial and accommodation spaces. 

Note, too, that semi-commercial properties don’t necessarily have to share the same tenants across both the commercial and residential areas of the building. A business might rent out the commercial part, while residential tenants might rent the living space.

Why are semi-commercial properties becoming more popular as investments?

With the struggles facing the UK’s economy in recent years, many landlords are looking to increase their portfolio diversity and pursue different avenues for property investment. 

Semi-commercial property investment presents a number of unique advantages over standard residential buy-to-lets:

• No stamp duty surcharge: Unlike traditional buy-to-let purchases, you won’t pay the extra 3% SDLT on a mixed-use property.
• More revenue: A semi-commercial property can effectively offer two revenue streams; one from commercial and another from residential. In general, the rental yields from semi-commercial properties are much higher than standard residential.
• Less risk: Letting to separate commercial and residential tenants enables you some financial insulation, particularly as the factors affecting each tenant type’s finances are largely separate; so if your commercial tenant drops out, your residential tenant should still be able to cover their own rent.
• Maintenance savings: Businesses are often more content to take responsibility for their own maintenance; which not only helps you save on costs but also enables you to stay slightly more hands-off with your investment.
• A gateway to commercial investment: For landlords who are accustomed to residential buy-to-lets, commercial property can be a daunting prospect with a steep learning curve. Semi-commercial property enables you to dip your toes in the waters of commercial property investment, while still enabling you to utilise your existing property experience.

What are the risks of semi-commercial property investment?

It’s not all roses, unfortunately. There’s a few risks associated with mixed-use properties, which you’ll need to consider before jumping in.

You’ll need a dedicated semi-commercial mortgage to buy a property. Fewer lenders offer these kinds of mortgage products, and the ones that do may not be compatible with your particular property. 

That said, a good mortgage broker can help you find the right deal. In the worst case scenario, you may be able to split the living space and commercial space onto separate titles, where they can each be financed with a regular buy-to-let mortgage and commercial mortgage respectively.

Another risk is finding a residential tenant, which may be tricky if the commercial produces a lot of noise and foot traffic. 

Remember, this won’t be a problem if you get a tenant who can occupy both parts of the property at once; but it also means you miss out on the risk insulation. If the tenant leaves or stops paying their bill, the whole property stops making money until you can replace them.

Interested in investing?

If you’ve weighed up the pros and cons and you’ve decided semi-commercial property investment is for you, SPV Mortgages are here to help. 

With over a decade of specialist mortgage broker expertise, our team can find and secure the perfect SPV semi-commercial mortgage deal to match your new investment goals.

Book your free consultation with us today. Let’s Talk