Commercial or residential: which property type should I invest in?

The UK offers endless opportunities when growing your portfolio. Whether you’re a buy-to-let beginner or have an extensive property portfolio, knowing where to invest and when is the key to making your investment work for you.

Here in East Anglia, we are blessed with a healthy stock of residential and commercial properties, a fact that can make picking the perfect investment route for your needs and budget pretty tricky. 

Read on to discover the pros and cons of both commercial and residential property, and which property type should get your attention when expanding your portfolio during 2023.

Looking for a longer-term money-maker? Go commercial!

A commercial property investment offers the long-term security many would-be landlords are looking for. In the UK in particular, the leasing arrangements that are commonly found throughout the commercial property market put the investor at a distinct advantage.

While, in the residential sector, you can generally secure a tenant for a fixed term of between 6 and 12 months. Commercial leases can be 10 to 15 years in length, providing a guaranteed income for a much longer term. 

There are also a variety of routes to investing in commercial property – including direct investment, direct commercial property funds, and indirect property funds – that may be more viable for those looking to start or grow their portfolio.

Commercial property investors also tend to receive fewer maintenance demands from their tenants. The initial outlay for those purchasing and refurbishing commercial premises can, however, be very expensive and price smaller investors out of the market.

Want to take advantage of the lack of UK housing stock? Buy residential!

UK housing stock has always been on the low side, and with the population continuing to grow and many developments stalling, demand continues to outstrip supply throughout the rental market Private rented housing has grown by just 1% since 2016, which means competition to secure a rental is at an all-time high for UK tenants.

While rising mortgage costs, capital gains tax changes, and increased regulation represent just some of the challenges facing landlords looking to buy their first residential property or expand their portfolio. The higher demand and low average house prices certainly make a case for investing in the residential property sector.

Rents for new lets are also rising meaning residential landlords can enjoy more of their profits despite rising mortgage payments and other costs as BBC News explains:

“Tenants in properties owned by private landlords have faced the highest rise in rent since comparable records began seven years ago, official data shows. Rents rose 4% last year as landlords, who face their own squeeze from higher mortgage rates, passed on those costs. A quarter of tenants surveyed in December said their rent had risen in the past six months, the Office for National Statistics (ONS) said.”

Still unsure which property investment is right for you?

As well as reviewing the buy-to-let trends to expect for the rest of 2023, seeking independent advice from one of our local advisors will ensure you make the right next steps for your circumstances and budget.

Our expertise in buy-to-let mortgages means you can grow your portfolio with confidence, despite the challenges facing investors of late. So, what are you waiting for? Get in touch with our team today to discuss your requirements.