Mixed use property

THE QUESTION

 I am looking at a mixed use building currently fully let.  It consists of:

• Ground floor let to a barbershop at £300PCM
• 3-bed flat above (over 2 floors) let at £495PCM

My question is:

• How would you put an indicative value on this type of unit when making an offer? It currently has a guide price of £96k and is going to auction, but didn’t sell at last auction (not sure if it didn’t meet guide or reserve)
• How willing are commercial lenders on financing such a property?

THE ANSWER

• Properties like this are based on a multiple of the rental income and that is influenced by based on the quality of the tenant and strength of the lease. i.e. a Tesco Express on a 20 year lease would value significantly higher than a barber on ‘whatever length’ lease.

So you have an annual rental income of £9,540. The guide price is therefore based on 10 x income and that is not unrealistic for this type of property.  If it didn’t sell at a similar guide price last time at auction, then you have a chance of getting a reasonably priced property.

It would be a good idea to put in a pre-auction offer to see if you can tempt the seller to sell prior to auction.

• This is bread and butter lending for commercial lenders, they do this stuff all the time. They require it to be tenanted and income producing to grant a mortgage - it is - so no problem there.

Whether they will lend to you is a different matter. They typically require people to have existing landlord experience, not necessarily of this type of property but renting generally. If you already rent out properties, that should be fine. You will also need to have sufficient cash to put down as a deposit; this will be at least 25% of the purchase price, if you have that, then also fine.

One other factor you need to consider here is you are buying at auction. You have a very tight timeline to complete the purchase, usually 28 days. Now there is no commercial lender that can work that fast, so you are not going to be able to use a mortgage to buy this.  You need to buy it first, then put it onto a mortgage.

There are two ways to buy from auction

1. Cash (yours or someone else's)
2. Bridging finance

If you don’t have 1, you need 2 and if you need 2 you will need to factor in the additional cost of it when deciding how much it is prudent to pay for this property.

We have brokered many deals like this using bridging and commercial mortgages. So if you want help, we can deliver it.

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