General advice on potential first commercial property investment

Big_Zee

I've just finished my first investment which involved redeveloping a rundown property into holiday lets, and was looking to re-invest my profits into a further holiday let.

Having search around in my local area for potential investments one that caught my eye was a mixed use property, with 2 seperate restaurant premises on the lower floors and 2 residential flats on the upper floors - which I believe due to location would make good holiday lets if done up well.

The freehold is being sold and the property is broken down as follows:
Restaurant 1 - (Currently not let) - Estimated Let-able value £16K p/a (rateable value £18K )
Restaurant 2 (Currently Let) - Returning £14K p/a (rateable value £12K)
2 Residential Flats - Currently on a AST returning £10K

Total Income Potential = £40K P/A
Current Let = £24K P/A

The asking price for the Freehold is £475 K

Based on the above this would give a total potential yield of 8.4% - (an initial yield of 5% until Restaurant 1 is let ).

NOTE: One other point is the property is listed - obviously that is not great if redevelopment or change of use comes into play - however it does have a very significant advantage that commercial rates are not payable if the property is not let (where normally you would be liable for rates after 3 months un-occupancy). This seems particularly relevant given one of the restaurants is currently not let.

This to me seems like a pretty good return, and I am convinced I could make a much better return on the Residential Flats if I convert them to holiday lets, given my experience with the previous holiday let I have converted.

I guess I am looking for some help / guidance, as this will be my first venture into commercial property and I am therefore way of things I may not know. So any advise would be appreciated on the following:

1/. Does the above investment look good?

2/. Are there any obvious pitfalls I should be looking out for?

3/. I have £150K cash to invest, which should give me 25% to invest with a little over for fee's etc. Do you think this is enough LVR or will the lenders be looking for more? - Are there any recommendations on the type of mortgage, and who would offer them?

Many thanks for your help - It's really appreciated!

Annisele

I'm not completely sure what you'd be buying.

Do the restaurants and the two flats have separate titles for the leases? If they do, then the length of the remaining leases matters a very great deal.

Big_Zee

Annisele wrote: »

I'm not completely sure what you'd be buying.

Do the restaurants and the two flats have separate titles for the leases? If they do, then the length of the remaining leases matters a very great deal.

I'd be buying the freehold on the entire property which comprises the 2 restaurants and 2 flats. The flats are on short leases - ie 6 months, so they would be owned by me. The restaurants - one is not let out and the other has 5 years remaining on the lease, bring in 14k p/a.

bizzybee

Is the location in Torquay?

dimbo61

You may have problems if you ever want to sell the flats above the food outlets !
Few lenders will give mortgages for flats above restaurants.
Do they have seperate entrances from business below.

Big_Zee

dimbo61 wrote: »

You may have problems if you ever want to sell the flats above the food outlets !
Few lenders will give mortgages for flats above restaurants.
Do they have seperate entrances from business below.

Yes the flats do fortunately have seperate entrances. I am aware of the issue on mortgages above restaurants, however I don't plan on selling them - just renting.