One of the most popular ways to maximize your profit from buying a commercial property is to convert it into residential homes. Rather than getting a commercial mortgage to buy property to let to a company, investors can buy empty commercial property with a view to converting it into a large home or a number of individual homes.
For example, many city center terraced properties that were originally used as homes are now occupied by solicitors or other professional firms. As we see the requirement for urban housing increase, many such properties are purchased by investors with a view to converting them from offices back into a residential property.
However, there have been two major barriers to undertaking this sort of conversion work over the last few years: the lack of available commercial finance and the amount of red tape and planning consent needed for such a conversion.
Since the credit crunch of 2008, it has been much harder for individuals and businesses to obtain commercial mortgages from banks and other lenders. Banks simply have not had the same amount of money available to lend which has made it harder to obtain commercial mortgage finance for conversion projects.
In addition, those banks that have continued to lend have restricted the maximum loan to value to around 60 per cent, meaning that investors or businesses have to put in a significantly higher deposit when buying a commercial property to convert to residential use.
Recently a complicated and lengthy planning process has also stopped many new homes in the UK being built. Now though, the authorities are trying to ease the restrictions for developers to refurbish commercial properties into new homes in an attempt to bridge the gap between demand for residential property and a chronic shortage of new housing stock.
The BBC reports that in 2010, just under 130 thousand new houses were built and approved in England, which is the lowest it has ever been since the early 1920’s. The BBC also reports that, between 7 and 9 per cent of commercial property in the UK lie vacant.
In order to tackle this problem, the Chancellor, George Osborne, announced in his recent Budget that he planned to scrap the requirement that developers obtain planning permission to convert empty office blocks, warehouses and business parks into housing. It is hoped that this will allow the rapid development of new homes. Ministers say that the plan could create up to 250,000 additional houses or flats and could save £140 million in red tape costs over 10 years.
The British Property Federation (BPF) unsurprisingly is in favour of relaxing the planning rules and process to make life simpler for developers. The BPF knows there is a balancing act to maintain between commercial and residential property, take too many commercial properties out of the market and you limit growth opportunities and jobs for the future. However, the BPF goes on to argue that there are areas where companies will never return to, especially with enterprise zones making a return, so is it is right and natural to use this land and property to tackle the chronic housing shortage.
So, if you are looking to buy a commercial property to convert to residential use, now could be the perfect time. With commercial mortgages now more common and changes to the planning legislation expected to remove the red tape and delays associated with planning consent, converting an office or factory into residential homes may never have been easier.