Why more investors are turning to semi-commercial for dependable income – Sims
Choosing between investment properties would be much simpler if they all had the decency to be obviously good or obviously bad.
Unfortunately, this is rarely the case. One offers a stronger yield, another sits in a better location, while a third needs more work but promises a much better return. Every opportunity seems to come with its own list of pros and cons, which is probably why there is no such thing as the perfect or most obvious property purchase.
Semi-commercial property has always been a good example of this. Some investors see the mix of residential and commercial income as a strength, while others are put off by the additional layers of complexity.
The changing space
However, I suspect that is beginning to change, not because the properties themselves are different, but because investors are looking at them through a different lens. Semi-commercial has not suddenly appeared as a different type of investment. What has changed is the way many investors are judging what makes an investment worth pursuing in the first place.
Sure, yield still has an important part to play, and I doubt anybody would suggest otherwise. The difference is that experienced investors rarely stop there because they also want to understand how dependable the income is likely to be, and whether the property will continue to support the borrowing if circumstances change. Those types of questions usually tell you far more about an investment than the yield ever could.
£2.5m paid to help broker clients benefit from greener homes
Sponsored by Halifax Intermediaries
Higher borrowing costs have also made those questions harder to ignore. There is less room for error than there once was, so every acquisition needs to justify itself much earlier. Not just on day one, but over the life of the investment as well. That probably should not come as much of a surprise. When there is less room for error, investors naturally spend longer thinking about where the risks really sit.
Balancing returns against risk
Once dependable income becomes a bigger priority, semi-commercial starts to look rather different.
A well-structured mixed-use investment combines residential and commercial income within the same asset, creating a broader rental base than relying entirely on one tenancy. That does not automatically make it the right answer, but it does mean it deserves closer consideration.
Of course, none of that removes risk, and it certainly does not mean every semi-commercial property represents a better investment. The property, the location, the tenants and the lease structure will always determine whether a purchase makes commercial sense, just as they always have.
What semi-commercial has always offered is balance. The interesting thing is that balance seems to carry a little more weight than it once did. Having residential and commercial income sitting alongside one another will not suit every investor, but for those seeking dependable income rather than simply the highest yield, it can be a very persuasive combination.
That naturally changes the way funding should be approached as well.
Semi-commercial lending has never really been about trying to squeeze a mixed-use property into a residential or commercial box, but rather understanding the asset, the tenancy arrangements and, just as importantly, what the borrower is trying to achieve.
That thinking sits behind our own semi-commercial proposition. It is designed to support eligible mixed-use properties with up to 40% commercial floor space because we recognise these investments often need a lending approach that reflects how they actually operate.
For me, though, the more interesting story is not the product itself. It is the fact that investors appear to be asking different questions before committing to their next purchase.
In many respects, semi-commercial property hasn’t changed at all. What has changed is the way investors assess it, and I suspect those questions will remain long after borrowing costs settle.
