Many property investors purchase commercial property to convert into residential homes to let out or sell for a profit. Here, we look at the process and the benefits.
Refurb-to-let is nothing new. It involves purchasing a property that needs updating, completing the refurbishments and renting out the improved home at a better rate.
However, a rapidly growing area of opportunity for buy to let landlords is purchasing commercial property to convert into buy to let homes for tenants. By taking advantage of underutilised or vacant commercial premises, landlords and property investors can create new buy to let properties to meet rental demand.
Not only does this offer generous rental yields for landlords to enjoy, but it can also increase the property’s value. In this introductory blog, we look at:
- Why this is a popular opportunity among landlords
- Change of use and planning permission requirements
- Financing the project
- The challenges and factors to consider
Change of use becomes a popular diversification opportunity
This type of property investment opportunity offers many benefits for landlords. There is the potential for higher rental yields than those accessible through standard buy to let investments. This is because these vacant properties are typically more affordable than other commercial properties, and you can create multiple rental units, such as a Multi-Unit Freehold Block (MUFB).
Furthermore, local councils often encourage these types of conversions, as they help tackle home shortages. There may be incentives such as relaxed planning regulations (discussed below) and tax benefits. Discussing your plans with the council where the property is located is vital before purchasing your property.
Appropriate properties for these conversions are typically on local high streets, making them desirable locations for potential renters. Those with good transport links and local amenities will attract the most demand.
Ultimately, you must ask yourself, “Would someone want to live in this location?” Not all vacant commercial property will be appropriate for conversion.
Change of use and planning permission requirements
When considering this type of project, it’s essential to consider 3 key factors.
Understand the local planning regulations
You must thoroughly understand the local planning regulations for converting a property from commercial to residential use. Different areas will have different rules and processes that must be followed, so it’s essential to do your research and speak to the local council and/or planning department before making any property investment decisions.
You’ll need to know whether full planning permission is required for the project or if the property qualifies for any exemptions. This will help you avoid any delays.
Your permitted development rights
If you're fortunate enough to find the property you’re interested in falls under permitted development rights, the change of use process is much simpler. Permitted development rights allow you to make some changes to the property without full planning permission, saving you time and money.
There are some criteria your property has to meet to qualify for this, such as vacancy period, the size of the property, any conservation areas, and more.
Speak with the experts
Enlisting the help of a surveyor or planning consultant can help you navigate this complex part of the process. The experts can support you through the approval process and identify any challenges you might face early on.
How to finance your change of use project
With this type of project, a standard buy to let or commercial mortgage won’t be suitable. Instead, you’ll need to consider more specialist property finance options such as bridging finance or, in cases where heavier refurbishment is required, development finance.
You’ll need to decide on your exit strategy with both of these finance options. This could be to remortgage the property onto a buy to let mortgage once converted or to sell at its new value for profit. Your lender will need a clear exit strategy before accepting your application.
Due to the complexity of both of these finance options, working with a whole-of-market, specialist mortgage broker (like us!) is essential. Our experience, expertise, and relationships with the key lenders mean we’re best placed to support you. Find out how we can help you here.
You will also need to factor in extra costs with the finance:
- Expenses for the renovation, including materials and labour
- Planning fees (if planning permission is required)
- Legal and surveying fees
- Broker fees
The challenges and other factors to consider
You may face several potential challenges with this type of project.
Conversion costs can become expensive fairly quickly, so it's essential to have a contingency plan in place to keep your costs down. Unforeseen issues such as structural damage can mean additional work is necessary, increasing your costs. Having a proper inspection completed by a professional before purchase with detailed quotes can help mitigate any unwanted surprises along the way.
Furthermore, if you require planning permission, this can slow down the process significantly and may even be rejected by the local council. Again, enlisting a professional such as a planning consultant allows you to prepare for any issues.
Before starting the works, you’ll also need to consider other factors, such as meeting the residential building standards, including the safety and energy efficiency requirements and tenant safety.
Speak to an expert
This type of property finance can be complex and difficult to navigate, so it's essential to work with an expert mortgage broker.
Speak to our team about the property finance options you can access and discuss your plans. Call us on 0345 345 6788 or submit an enquiry here.
