Buy-to-let property returns outpace commercial property

The average returns on buy-to-let residential properties are double the returns available on commercial property, new research has shown.

According to data from peer-to-peer lending platform Sourced Capital, the average annual return on a £500,000 investment in residential buy-to-let properties is five per cent per annum.

By contrast, the average return on commercial real estate is 2.2 per cent.

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However, the average annual returns vary according to location. The best residential buy-to-let option is currently the North West, where yields climb as high as 5.5 per cent on average.

Residential buy-to-let properties in the East of England offer the lowest returns, averaging 3.8 per cent per year.

Meanwhile, commercial property yields vary enormously depending on the nature of the business. The average yield on an industrial commercial property can reach as high as 7.6 per cent per annum for an industrial commercial property, or 6.9 per cent per year for office space.

However, commercial retail spaces offer the worst value for money, averaging an annual loss of 6.2 per cent.

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Stephen Moss, managing director of Sourced Capital, pointed out that a £500,000 investment in a property-backed P2P platform could generate returns of up to 12 per cent per annum, depending on the project in question.

“It can be hard to know where your money is best invested in times like these, but on the whole, residential bricks and mortar certainly makes for the most consistent option both in the long-term, and regardless of geography,” said Stephen Moss, managing director of Sourced Capital.

“Of course, commercial property carries a greater risk, but depending on which sector you opt for, these risks can be greatly rewarded.

“However, with so much uncertainty surrounding much of the commercial space and to a degree, the residential market as well, it can be hard to decide where to place your bets. This has been the driving factor behind many opting for a more hands-off approach, with platforms like Sourced Capital seeing an increase in popularity from more traditional bricks and mortar investors.

“As a result, you get the option of keeping your investment strategy moving while letting trained experts decide which developments are likely to bring a good return on your behalf.”

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