Commercial property is a popular investment for Doctors and Dentists, often simply investing in the property that their practice operates from. Particularly in light of recent changes to residential property and buy-to-let, some property investors are turning to the commercial sector as an alternative. What does commercial property investment involve?
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.
Commercial property investment – in a nutshell
Commercial property is considered an asset class, alongside shares, cash and fixed interest.
Also, know as real estate investment, it involves owning a business premises and charging a rent to commercial tenants to use the property.
Retail, offices and industrial are the three main sub-sectors of the commercial property market.
There is a fourth sector that is emerging and becoming a keen interest for investors and this is called the “alternative” sector. It includes everything from hotels to healthcare surgeries, petrol stations, restaurants, bars and private rented housing.
Historically, it was only wealthy individuals and government bodies that owned commercial property. However, now private investors are starting to make their stance.
For many Doctors and Dentists, owning the bricks and mortar of their practice is a good commercial investment.
Is commercial property a profitable investment?
A stable income stream can be earned from commercial property investment, in addition to capital growth over the longer-term.
To this effect, commercial property has the potential to offer relatively high returns on investment, overall.
Whilst property does behave differently to other assets, figures show that average returns can meet those of investment in bonds and shares, when good decisions are made.
Lease agreements are typically drawn up for periods of three to ten years and the benefit for investors is the fixed income stream, that may help to fund other projects.
Of course, as with all property, supply and demand variables do affect the level of commercial rent that can be charged.
Also, if there is a general prospect of rental growth in the market, then capital values are likely to increase.
If there is a decline in rental demand, capital values could reduce. This is why a long-term approach is needed.
Advice is therefore useful to gauge potential returns and to assess if a particular investment will be lucrative and meet your own individual financial goals.
Commercial property investment for Doctors & Dentists
Often Doctors and Dentists choose to invest in a commercial property to run their practice from.
As a long-term investment this can certainly be profitable. Rather than paying commercial rent to another property owner, you are able to build the equity in your own property and then either sell upon retirement for a lump sum, or continue renting to other business owners for a regular income.
The commercial property can be structured in several ways and financial advice is essential.
In summary though, “the property” charges a rent to your dental or medical business, which is tax deductible as a business expense. Tax is then payable on the commercial property income, by “the property” and needs to be correctly accounted for in your tax return.
Commercial property is also not affected by the new Stamp Duty rules – a huge bonus for property investment at the moment.
Even premises that are part business and part residential are not affected, so one option for healthcare professionals now is to seek a premises that serves as residential and commercial.
Commercial finance
To invest in a commercial property, a commercial property loan can fund the purchase, unless you have surplus cash to invest.
Most Doctors and Dentists choose a commercial loan, as loan interest is also deductible against the rental income.
For help with raising finance to invest in a commercial property, speak with a specialist finance broker who can provide you with your options.
For commercial property finance, speak to Kevin
Dental & Medical Financial Services can help with raising commercial property finance to purchase your practice, or an alternative investment. Call for an initial chat:
Tel: 01403 780 770
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