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Ringing in the returns

There is an old motto in investment. “Never put all your eggs in one basket”. Many buy-to-let investors are taking this advice on board and have turned their attention to investing in commercial property.

One of the more unusual types of commercial investments are the mobile phone masts used by network operators such as Orange. Elliot Sorsky, a 37 year old from Finchley, north London is an example of someone who started with buy-to-let and has recently turned his attention to this type of investment. His portfolio now includes 10 mobile masts, which he bought primarily for their yields. The most recent purchase was a mast in Flintshire, North Wales, which cost £74,500. The site was already let to Orange and is guaranteed to pay an income of £5,500 a year. The yield is 7.25% after costs. He explained: “It gives me a great income stream because the rent is guaranteed until 2014”. This yield is currently considerably higher than the average for buy-to-let investments, which the most recent (2nd qtr 2006) ARLA report showed to be 5.24%.

The disadvantage with mobile phone masts are that once the lease expires whilst there is a strong likelihood, there is no guarantee that it will be renewed. In this situation you could be potentially left with a mast and a piece of ground, which you can’t do anything with because of planning restrictions.

More traditional types of commercial investment such as shops, offices, warehousing and pub investments have also been popular with buy-to-let investors. Strong demand has resulted in rental yields falling as price rises have outpaced rent increases. Despite this, it is still possible to pick up properties with yields in high single figures.

At a recent Allsops auction in London, a pub in Bradford let to London & Edinburgh Inns, was snapped up for £397,000. The rent of £35,000 was guaranteed until 2030, giving a yield of 8.9%. Investors should be warned that some of these leases contain break clauses, which allow the tenants to exit the tenancy way before the tenancy should end. The result could be a long void period before the property is let to a new tenant. This then could be at a rent significantly below the original, thereby reducing the yield.

Commercial and residential property is being increasingly located using the Internet. Have a look in our Buy & Sell property section for ways to transact residential property. One of the best ways to source commercial property is through the site www.propex.co.uk . Since last week it is now also possible to buy and sell properties on line.

It’s clear that commercial property provides some interesting ways for buy-to-let investors to diversify their property portfolios. However, Property Hawk would always advise any investor to take professional advice before moving into these types of investments. As the Romans used to say caveat emptor – ‘let the buyer beware’!

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