Converting a commercial property for residential usage is becoming increasingly common in 2016 to 2017 the number of these conversions increased by 40% within the UK.
Although this market continues to show potential, it’s still essential you learn how to successfully convert a commercial property whilst mitigating any potential risks.
Thanks to the 2015 General Permitted Development Order (GPDO) amendment, you are now allowed to convert your commercial property into a home. Planning permission is not required if :
- The conversion is under the Permitted Development Rights or;
- The conversion is within the same use class.
Before moving on to the details, it’s worth considering the legalities and available use class changes for any property conversion.
Can I convert a commercial property into a home?
Yes, you can convert a commercial property in a domestic home, however, you may require planning permission. If you decide to start renovating without it, you’ll be in planning breach which could cause future legal and/or financial problems.
There are unique cases where within the sale of commercial property, permission has already been granted.
What is Planning Permission and why is it important?
Planning Permission simply means applying for the permission of the government to do building work on any property or land. The decision may depend on certain conditions regulated by the Local Planning Authority. Here are the standard grounds that require you to apply for planning permission:
- Building a property.
- Change of use.
- Exterior changes like extensions.
Restrictions on Change of Use
There are certain cases that make converting your property infeasible, these include:
- Conservation Areas.
- National Parks.
- An Area of Outstanding Natural Beauty.
- A Listed Building/ Schedule Monument.
- If the property is located within an area of scientific interest.
- A Safety Hazard Area.
- A Military Explosives Area.
On what circumstance will I need Planning Permission under Permitted Development Rights?
The only time you’ll need planning permission is when exterior modifications will change the use of the property.
There are still cases of property conversion which require you to obtain Prior Approval. Prior Approval is a procedure of the Local Planning Authority or LPA to secure matters relating to:
- Parking and highways.
- Contaminated Land.
- The impact of the repurposing proposal on the sustainability of the market in the area.
Repurposing famous commercial properties aren’t affected by the LPA law. Furthermore, the amendment took place to increase the usage of empty, efficient buildings whilst also encouraging an active community development for poorer or underutilized areas of the property.
Can I still convert the building if it is listed?
It is possible, you will need to undertake the full planning permission process and the LPA might request the architectural drawings for the property.
The renovation/conversion work may need to be completed to a specific standard or might require specific building materials in order to preserve the building’s history.
Funding Options in Property Conversion and Other Costs
Commercial property types are generally more expensive than other property types. But with bigger plots comes a greater potential for higher yields.
Before you can purchase and convert your property, you must have a complete understanding of the financing process. Unlike residential property financing, there are stages in your commercial property conversion financing process:
- The commercial property that’s proposed to be converted will be initially mortgaged as commercial. This means your funding is patterned on the commercial value of the property.
- After 6 months or after the conversion work takes place, you may then have the property revalued and refinanced into a residential mortgage.
Two Ways to Fund your Purchase and Conversion
Self- build mortgage
The process for this mortgage is getting the whole amount for purchase but the conversion funds will be released in stages. You may only get the reimbursement for conversion costs after the construction is done.
As for this loan, you will receive the full amount but with higher interest.
Other Fees to Consider
The main factor of your budget will be the scale of the project itself. So while you’re not at that stage yet, It’s good to know the government fees ahead:
- Prior Approval Fee: £200.
- Planning Permission Application Fee: £80 – £120.
- Stamp Duty Tax: £150,000.
- Solicitor’s Fee.
- Survey Specialist Fee.
- Cost of Construction / Refurbishment.
- Sound Proofing.
- Thermal Insulation.
- Residential utilities such as drainage, water, electric facilities.
Advantages of Converting Commercial to Residential
In spite of the complexity of financing for commercial properties, investors are still gearing towards its direction. Here’s why:
- Many commercial properties remain empty from the retail market shifting to being online orientated. This has continually forced property owners to ask for less to seal and secure property deals.
- A commercial property’s location is strategized to have good access to amenities such as transportation links, hubs and workplaces. This attribute is very attractive to the growing tenant demand.
- Repossessing a commercial property with a historic trademark will do you wonders. Not only will it bring life back to the place, but can also boost the morale of the citizens who were attached to it.
- You may turn unloved commercial properties into Houses of Multiple Occupation or HMOs. This investment trend is gracefully taking the spotlight due to higher yields than a single let. Due to the number of tenants, a missed rental payment won’t get you in arrears.
The biggest factor of the market change is the changing culture itself. Considering the growing tenant demand and shift of the retail industry online, investors and property owners must remain flexible and agile.
3 Key Disadvantages of Commercial Property Conversion
In every investment, there will always be risks. It’s an absolute undertaking. So here are 3 disadvantages you need to be aware of:
- Transforming the commercial structure’s interior into an adequate residential dwelling may require a larger amount of investment capital.
- Since the property is repossessed, structural problems may arise if they haven’t been addressed early on.
- You may be needing the help of a commercial property agent to survey your property, this will need to be included within your existing budget.
Everything will depend on how you weigh the possible odds. And in order to save yourself from ‘disaster investments’ make sure to do your due diligence and never underestimate the small details.
Common Types of Commercial-to-Residential Conversions
Light industrial to C3 – Homes
Light industrial conversion tops the list because the typical location of these establishments is in residential areas. Thus, making the environment conducive for dwelling.
Office to C3 – Homes
The growing demand for this type of conversion started in 2013. Since then, ‘traditional’ landlords have been executing this tactic due to higher yields in comparison to single property lettings.
Joe Green and Natasha Stroulger were able to successfully transform this historic commercial property into a modern home.
Agricultural buildings to C3 – Homes
Agricultural buildings are under Class Q in use classes and are one of the common conversions in the list. This conversion doesn’t allow permission planning as long as there will be no changes in the structure of the building and the proposed renovations are minimal.
Another term given to this type of conversion is ‘barn conversion’. One of the most breathtaking conversions to inspire is the Brick and Timber Barn conversion in Essex/Suffolk border. Though the build cost £500,000 and the barn cost at £249,000, the current value has doubled to £1.7m.
Hopefully, now you have a good understanding of the essential items for converting commercial property into residential property.
What’s more, you should also remain flexible with the changing economy to make the most out of your investment. The shift will be tough but it will be rewarding to see how a once unloved property go back to its former glory while you earn more money.